The effects of the credit selection criteria on non-performing loans: Evidence on small and large banks in Italy
ISSN: 2049-372X
Article publication date: 10 February 2020
Issue publication date: 6 April 2020
Abstract
Purpose
This paper aims to deal with the perceptions of banks’ managers about some criteria for assessing creditworthiness related to firms and how these criteria affect non-performing loans (NPLs). The paper wants to respond to the following research question: “Which criteria influence the magnitude of NPLs?” The evidence is based on the improvement of credit quality in the Italian banking system, which the authors study in aggregate and size-specific analyses, creating two subsamples (large and small banks).
Design/methodology/approach
The methodology used was a mixed method approach. The values of the variables were quantified according to the information derived from Thomson Reuters (Eikon, Datastream), the financial reporting of the banks and questionnaires directly administered to the bank managers.
Findings
This research about loans selection criteria provides useful indications for “The Basel Framework”. The results show that managers of the large banks are improving the approach of allocating the loans; the managers of the small banks are getting worse in the period 2006-2016. Therefore, it should be valuable to build a new standard about qualitative and quantitative criteria to recognize credit risk. In particular, these criteria could be adopted to reduce NPLs, and they should be different in small banks and large banks.
Originality/value
The study is part of empirical research investigating the causes of the significant increase in NPLs in the Italian banking system in 2006-2016. Most research interprets the increase in NPLs in the Italian banking system only as an effect of the crisis in the Italian entrepreneurial system. This research offers a different interpretation of the problem, interpreting the phenomenon as a delay of the banking system in investing in an effective information criterion.
Keywords
Acknowledgements
The authors gratefully acknowledge the participation of the bank managers who participated in the study. They are also grateful for the valuable comments provided by the editor and anonymous reviewers of this journal.
Citation
Campanella, F., Gangi, F., Mustilli, M. and Serino, L. (2020), "The effects of the credit selection criteria on non-performing loans: Evidence on small and large banks in Italy", Meditari Accountancy Research, Vol. 28 No. 2, pp. 251-275. https://doi.org/10.1108/MEDAR-01-2019-0430
Publisher
:Emerald Publishing Limited
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