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Journal of Economics and Finance

Erschienen in:

13.12.2019

ECB’s unconventional monetary policy and bank lending supply and performance in the euro area

verfasst von: Dimitris Kenourgios, Despoina Ntaikou

Erschienen in: Journal of Economics and Finance | Ausgabe 2/2021

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Abstract

This paper examines the impact of the European Central Bank’s unconventional monetary policy (UMP) on bank lending supply and performance in the euro area, through comparing the evolution of bank-specific variables before and after the UMP implementation. By using a dynamic panel data analysis on banks across discrete country groups (euro zone, core, peripheral) and by controlling for bank-specific and country-level variables, we provide evidence that the bank lending decisions and performance of euro zone banks are not UMP driven, implying the limited ability of the ECB to enhance the effectiveness of banks’ lending channel and to affect banks’ profitability during the crisis. Our findings also suggest that different criteria determine banks’ lending strategy before the UMP period, bank credit strategies vary across the country samples, while the weaker economies’ banks seem to underestimate the impact of liquidity risk on their lending activity.

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The period of APP net asset purchases ended in December 2018. For more details, including statistics, of each program, please visit the ECB’s site: https://www.ecb.europa.eu/mopo/implement/omt/.

In another strand of the UMP literature, Ashraf et al. (2017) suggested that conventional MP tools other than a zero-bound official bank rate may be effective on variables such as market index, foreign exchange index, investment grade and non-investment grade bond yield, spots and forwards. Kenourgios et al. (2019) found differences regarding the impact of ECB’s UMP on the cross-market correlation dynamics across four UMP periods and across a range of developed countries and emerging market economies. Fassas et al. (2019) showed that the correlations among variance premia increase during the QE announcements by the Federal Reserve, may lead to stock price bubbles and undermine financial stability. Papadamou et al. (2019b) provided empirical evidence that the Fed’s non-conventional actions weakened its MP impact on the stock indices of six African and nine Middle Eastern emerging economies.

Descriptive statistics for each of the variable used in our specification models are available up on request.

As Ashcraft (2006) found, by comparing the results collected from annual data to those captured from quarterly data of respective samples, annual data provided the same information as quarterly data. Moreover, Gambacorta (2005) also highlighted the fact that the bias in results obtained using annual data instead of quarterly does not appear to be significant.

Given that the selected banking data, as obtained by the Bankscope, consist of missing observations, due to banks’ acquisitions/mergers or lack of obligatory reporting, our final sample is unbalanced. In this way, we examine the European banking system without excluding banks whose part of their reporting data is missing.

Greece and Cyprus are the two key NPL performers in the euro zone since they display the highest rate of growth and level of NPLs during the last years. More specifically, according to the Bank of Greece, NPLs to Total Loans in Greece was 48,5% (104,8 bn €) in December 2016 from 8,1% (7,14 bn €) in 2002 (end of period). According to the World Bank, the respective percentage of NPLs to Total Loans in Cyprus was 48,67% in 2016 from 3,59% in 2008.

The regression results for bank lending and profitability across the samples with RoA as a dependent variable are similar with those of RoE and are available upon request.

A similar analysis was also conducted for the subsample of 27 Greek and Cypriot banks. The impact of the ECB’s MP is found to be positive and statistically significant during the entire period 2000–2016, in line with the findings for the other groups of banks. The impact on RοA is positive and statistically significant during the UMP period 2009–2016. Moreover, in contrast to the results for the GIIPS sample, there is a negative impact of liquidity risk on the Greek and Cypriot banks’ RoE across all three time periods, which implies the existence of non-interest activities that over hedge the liquidity risk. Due to space limitations, the regression results are available upon request.

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Titel: ECB’s unconventional monetary policy and bank lending supply and performance in the euro area
verfasst von: Dimitris Kenourgios
Despoina Ntaikou
Publikationsdatum: 13.12.2019
Verlag: Springer US
Erschienen in: Journal of Economics and Finance / Ausgabe 2/2021
Print ISSN: 1055-0925
Elektronische ISSN: 1938-9744
DOI: https://doi.org/10.1007/s12197-019-09503-6

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