What Triggers Loan Losses? An Empirical Investigation of Greek Financial Sector

Abstract

The aim of this study is to investigate which factors influence loan quality in Greece. In this context, it is examined the effect of various accounting and macroeconomics indices to loans loss provisions (LLP) and loans loss reserves (LLR) ratios. The empirical analysis is carried out at both individual bank and banking system level data by using dynamic regression techniques. The findings extend the existing literature and confirm all the examined hypotheses, since macroeconomic environment (unemployment, public debt, economic growth and inflation) and accounting factors (past performance of loan quality, capital adequacy, liquidity and profitability) seem to influence credit risk in Greece.

JEL: G21, M41.
Key words: Credit Risk; Loan Quality; Loan Loss Provisions; Loan Loss Reserves; Accounting Factors; Macroeconomic Factors.