Banking Sector, Non-Performing Loans, Financial Crisis: Evidence from Greece

The purpose of this book is to analyze the overall condition fluctuation of the Greek commercial bank institutions in order to reveal the reasons that have affected their performance and their rating during the period under study. Besides, Non-Performing Loans portfolio (NPLs), a major issue faced by the global financial system after and during the financial crisis, has also extremely influence on the Greek banking sector in recent decades, has therefore been analyzed for its interrelation and the possible impact to the profitability and overall efficiency of the Greek banks.

The lack of liquidity, the capital inadequacy and the continuous reduction of profitability are consequences faced by the Greek banks, which motivated them to get engaged in business deals such as share capital increase, mergers and acquisitions.

The research is directed to analyze deeply and comparatively the Greek Commercial Bank institutions listed in Athens Stock Exchange Market during the period from 2006 to 2012, using CAMELS rating methodology. Besides, the role of Non-Performing loans on Banks’ performance using ratio analysis of National Bank of Greece, Piraeus Bank, Alpha Bank, Eurobank, Attica Bank and the Co-operative Banks of Epirus, Crete, Thessaly, and Serres, has been empirically investigated in order to reveal the impact of NPL to their profitability for the year 2017.

The CAMELS rating fluctuation of the banks’ performance is strongly related to business deals, such as issuing long-term debt. The results which have been cross tested using the Fixed Effects Model in a panel data analysis, verify the existence of high profitability, liquidity and high capital adequacy before crisis period, 2007 to 2009, with statistically significant all the traditional ratios, on the contrary to the financial crisis period in Greece of 2009 and after, with Sensitivity and Liquidity being the only rating components that provide insights into the banks’ financial situation, as its ominous impacts revealed on the bank financial statements and reports.

The conclusion resulted concern the correlation of loans with outflows, the multifaceted analysis of linear regression to control the effects of loans and finally the effect of lending on the banks’ performance.

Interest income on loans is positive for all Banks but with a wide variation, while Interest-Expenses show an asymmetric distribution. Overdue loans for more than 90 days show uniformity apart from Piraeus Bank which shows an extreme price. The correlation between ROA and ROE with loans is not statistically significant.

The effect on the Equity of loans in all forms except regulated is considered statistically significant. The negative effect of NPLs for more than 90 days on Net Profit before Tax is considered statistically significant.