The Roots of the Banking Crisis in the New EU Member States: A Panel Regression Approach

We contributed to the empirical evidence of the impact of macroeconomic environment on the non-performing loans (NPL) ratio dynamics by analyzing the panel model with fixed effects, the model with random effects and instrumental variable regressions to control for a potential endogeneity problem. Economic and consumption growth proved to be positively correlated with the business cycle in the ten new EU member states (NMS-10), which raised the quality of the loan portfolio. Compliance with the Basel Core Principles was shown to improve the NPL ratio dynamics.