Forum | Papers » The efficiency in lending process. Findings from the Italian Banking System
The paper aims to disentangle the physiological credit risk, based on bank’ lending activity and management choices, from the credit risk coming from the inefficient screening and monitoring management process. The analysis is conducted on a sample of 332 Italian banks – 50 stock (Spa), 23 cooperative (Popolari) and 259 mutual banks (Bcc) – during the 2006-2017 time period. For each year, we estimate the stochastic frontier, as a set of best management credit practices, which minimizes the credit risk as a function of the macroeconomic conditions, of the competitive conditions, of the interest rate charges on loans and the technical structure of the loan portfolio (such as, credit lines, mortgages, consumer loans and other technical loans categories). The empirical results show the presence of a certain level of inefficiency but, on the other hand reveal a solid improvement in credit management. The size is a determinant which explains higher inefficiency levels for those banks with higher Npls ratio. Similar inefficiency levels are observed for small banks with lower Npls.
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