Unemployment as a Determinant of Non Performing Loans: The Case of European Countries

Non-performing loans represent a very important indicator of the banking sector stability and, at the same time, of the financial system of an economy. A high share of non-performing loans in the structure of total loans can represent a potential cause of the insolvency of the banking system and the emergence of a banking crisis. The issue of non-performing loans is particularly important for the economies with bank-centric financial systems, in which the banking sector is the most important element of the financial system and often the most important source of financing economic activities. The subject of the paper is based on examining the influence of unemployment on the stratum of non-performing loans. The goal of the research is to establish whether and to what extent unemployment affects the level of non-performing loans in the observed economies, as well as to what extent the differences in the level of non-performing loans can be explained by the differences in unemployment. The research results suggest that unemployment has a statistically notable but relatively small influence on the stratum of non-performing loans in the observed economies.