Can Italy Grow Out of Its NPL Overhang? A Panel Threshold Analysis

By Kamiar Mohaddes, Mehdi Raissi, Anke Weber

March 24, 2017

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Kamiar Mohaddes, Mehdi Raissi, and Anke Weber. Can Italy Grow Out of Its NPL Overhang? A Panel Threshold Analysis, (USA: International Monetary Fund, 2017) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper examines whether a tipping point exists for real GDP growth in Italy above which the ratio of non-performing loans (NPLs) to total loans falls significantly. Estimating a heterogeneous dynamic panel-threshold model with data on 17 Italian regions over the period 1997–2014, we provide evidence for the presence of growth-threshold effects on the NPL ratio in Italy. More specifically, we find that real GDP growth above 1.2 percent, if sustained for a number of years, is associated with a significant decline in the NPLs ratio. Achieving such growth rates requires decisively tackling long-standing structural rigidities and improving the quality of fiscal policy. Given the modest potential growth outlook, however, under which banks are likely to struggle to grow out of their NPL overhang, further policy measures are needed to put the NPL ratio on a firm downward path over the medium term.

Subject: Distressed assets, Econometric analysis, Financial institutions, Financial sector policy and analysis, Nonperforming loans, Threshold analysis

Keywords: Distressed assets, Global, Growth-threshold effect, Italy, Nonperforming loans, NPL ratio, NPL-ratio growth, Panel tests of threshold effects, Ratio of non-performing loans, Ratios data, Real GDP, Real output growth, Resolution measure, Threshold analysis, WP

Publication Details

Pages:

17
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/066
Stock No:

WPIEA2017066
ISBN:

9781475588651
ISSN:

1018-5941

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