DETERMINANTS OF LOAN QUALITY: LESSONS FROM GREEK COOPERATIVE BANKS

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By: Vasiliki MAKRI, Konstantinos PAPADATOS
JEL: C23, G21
Keywords: credit risk, loan quality, loan loss reserves, accounting factors, macroeconomic environment and generalized methods of moments

The article focuses on the credit risk of cooperative banks in Greece. The main objective is to define which factors are responsible for variations in loan quality during the period 2003-2014. Loan quality is measured by Loan Loss Reserves Ratio (LLR) and dynamic regression techniques are implemented for the econometric estimations. The outlined results suggest that the macroeconomic environment (i.e. public debt, local unemployment, economic activity and inflation) and the accounting ratios (i.e. past loan quality and profitability) seem to be the explanatory variables of problem loans.