In this paper, we analyse the link between the macroeconomic developments
and the banking credit risk in a particular group of countries – Greece, Ireland,
Portugal, Spain and Italy (GIPSI) – recently affected by unfavourable economic
and financial conditions.
Employing dynamic panel data approaches to these five countries over the period
1997q1-2011q3, we conclude that the banking credit risk is significantly
affected by the macroeconomic environment: the credit risk increases when GDP
growth and the share and housing price indices decrease and rises when the
unemployment rate, interest rate, and credit growth increase; it is also
positively affected by an appreciation of the real exchange rate; moreover, we
observe a substantial increase in the credit risk during the recent financial
crisis period. Several robustness tests with different estimators have also
confirmed these results.
The findings of this paper indicate that all policy measures that can be
implemented to promote growth, employment, productivity and competitiveness and
to reduce external and public debt in these countries are fundamental to
stabilize their economies.
JEL Classification: C23;
Keywords: Credit risk; Macroeconomic factors; Banking system; GIPSI; Panel