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Financial Institutions and Economic Growth: Navigating Challenges

  • 09 Pages
  • Published On: 15-12-2023

Financial institutions and organizations play an integral part in the growth and development of an economy. According to the current literatures it has been observed that the financial institutions like the banks contribute extensively towards the development and growth of an economy. However, it has been observed through several instances that the non- performing loans and other means has been challenging the capability of the banking organizations in maintaining the stability of their operations while contributing towards the economic growth and prosperity of nations.

The current research study, “What Causes Non-Performing Loans? The Case of Greece Using Primary Accounting Data” examines the cause and the impact of the non performing loans on the economy and the banking institutions. The discussion would critically evaluate the different aspects of the research that was conducted by Vasilios Giannopoulos in order to understand the currency, relevance and authenticity of the information that is shared through the research article and the manner in which the data would be supportive towards reducing the risks that are being encountered by the financial institutions.


Critical assessment of “What Causes Non-Performing Loans? The Case of Greece Using Primary Accounting Data”

Credit risk is one of the foremost risks that are confronted by the banking businesses which drastically affects the capability of the same in contributing towards improving the economic situation of a nation. According to the research made by Giannopoulos (2018), it has been observed that the banking institutions must take the initiative of developing identification and specific interventions in order to prevent the occurrence of non- performance loans. According to Karadima and Louri (2021), Non- Performance loans are the credits where the banking institutions fails to realize the scheduled payments from the borrower within a specified period. It has been observed that the Non Performance Loans (NPL) drastically affects the capability of the banking institutions in providing further credits which limits the scope of trade and business in a nation.

The research made by Giannopoulos (2018) significantly identified the concerns that are being encountered by the banks through an NPL and the manner in which the same might create an impact on the growth and development of different other small businesses in the same economy. Giannopoulos specifically focused towards identifying a case scenario of Greek’s recession and the manner in which the NPL affected the banks in providing further credits which degraded the trade prospects of the economy. The purpose of Giannopoulos’ research was to study the behavior of a sample of loans that were sanctioned by one of the four systematic banks in Greece in the year 2005 and led to a recession between the years 2010 and 2011 (Giannopoulos 2018).

Therefore, it might be stated that Giannopoulos focused towards analyzing a pattern in the credit listings with the purpose of devising an insight on the causes of NPL. The research was conducted through the conduction of a binomial logistic regression where unique data of 2591 loans, which were granted by the bank in the year 2005, was used. The rationale for utilizing the sample loan receipts was to identify the nature of the credit transaction and the manner in which the SMEs defaulted the payments resulting to the great recession.

Critical evaluation of the objectives and the aim of the research study

Lucid objectives were framed by Giannopoulos for the study which helped in identifying the different activities that might be considered for the conduction of the research. According to Ridder (2017), clear and concise aims and objectives of a research supports in guiding the study through a set of activities efficiently towards realizing the outcome. Again, Flynn and Korcuska (2018) opined that objectives and research questions defines the grade of a research study while guiding the overall activities towards meeting the significant results. Therefore, in this connection, it has been observed that Giannopoulos designed the purpose of the study through exploratory means for analyzing and understanding the behavior of a sample of loans that were granted by one of the systematic banks in Greek.

The rationale for studying the loans was to develop insights on the causes of the NPL. The clarity of the objectives and the rationale for the study has supported Giannopoulos in developing a coherent understanding on the subject and the different intervention that might be implemented in order to resolve the concerns relating to NPL. The major objective of the research was to identify and resolve the causes of NPL while enabling the banking institutions to prevent situations like NPL which might affect the interests of the economic growth in a nation.

Giannopoulos took the initiative of focusing on a particular case of the Greek recession and the huge amounts of NPL that were faced by the banks through the evaluation of the credit types of one of the systematic banks. Rationality and systematic approaches are applied by the researcher in order to conduct the study and guide the same towards realizing the significant outcomes. Therefore, the clarity of the purpose is an important factor that might be noticed from the study conducted by Giannopoulos which supported in improving the prospects of developing a clear view on the concern area and the mitigation strategies.

Critical analysis of the literature review

Critical literature reviews are an integral part of a research as it provides a background to the concern area. The utilization of relevant and authentic past literatures significantly supports a researcher in developing coherent contextual background for a study while establishing a rationale for the conduction of the study. Karadima and Louri (2021) observed that authentic and reliable sources of information are integral part of a literature review which reduces different biases and guides the study towards significant outcomes. It has been observed that the researcher utilized both qualitative and quantitative means of data for developing the literature review which has contributed towards enriching the study based on authentic research instruments.

For an instance, Giannopoulos idealized in the review that a good credit risk assessment method is efficient towards identifying the creditable applicants while reducing the risk of NPLs drastically by 1%. The use of quantitative and qualitative means of data in the literature review removes personal biases and guides a study towards realizing the significant outcomes. According to Ozili (2019), the use of authentic and relevant information in both quantitative and qualitative forms supports a researcher in reducing personal biases and develops coherent insights on the problem area. Therefore, it might be stated that Giannopoulos made efficient use of both the primary and secondary information in the literature review which has significantly contributed towards finding the significant concerns that are being encountered by the banks or other financial institutions through NPL.

Moreover, it has been observed that Giannopoulos made use of relevant and authentic, peer reviewed, literatures for constructing the literature review. Kumar et al. (2018) stated that authentic and relevant articles and journals improves the understanding of a situation on a research problem and thereby assist in identifying interventions that might be applied by the readers in the real life scenarios. Therefore, the use of relevant, current and authentic sources of information supported Giannopoulos in conducting a coherent study on the concerns that are being encountered by the financial institutions and the manner in which the banks might take steps towards preventing NPL while assessing the creditable applicants. Therefore, it might be stated that Giannopoulos made use of systematic review of the available literatures in order to influence the authenticity, reduce personal biases and idiosyncrasies and maintain relevance of the study.

Analysis of the methodology used

The methodology that was used by Giannopoulos was binomial logistic regression where exploratory design was inducted. The use of the binomial logistic regression has helped Giannopoulos in analyzing and comparing the data between the different loan application samples while identifying patterns. The identification of the patterns of the loan applicants is specifically guided through a psychology based study where the behavior of the loan applicants was tested in order to identify the causes of NPL. Mazreku et al. (2018) stated that the research methodology forms an integral part of a study as it helps in guiding the overall operations towards the tentative findings. A deductive approach is being used by the researcher with the purpose of deriving data from different available sources.

Ari, Chen and Ratnovski (2019) stated that the application of a deductive approach supports in identifying and including different relevant and authentic sources of data that supports in identifying the concern areas more efficiently. In this connection, it has been observed that Giannopoulos did not produce any new framework from which it might be concluded that the researcher specifically relied on the available sets of different data units with the purpose of conducting the study on the causes of NPL in Greece. The methodology was logically structured and it clearly identified the actions that were conducted for the research. Karadima and Louri (2021) stated that a clear statement of methodology is important towards developing insights on the authenticity of information that has been induced in the study. Therefore, Giannopoulos took the initiative of making a clear statement on the methodology that was used in the study with the purpose of developing an idea on the different areas of activities and thereby relating the information with the significance of the findings.

Critical evaluation of the outcomes and its utility for the readers

The research identified that in general the variables might be held responsible for the creation of the NPLs in the studied period. On the other hand, it was observed that the binomial logistic regression reflected a positive correlation between NPLs and the factors like “Adverse”, “Age” and “LTT”. The research devised a negative correlation between factors like the independent variables “Collateral”, “Own Facilities”, “Property”, “Residence” and “Years of operation” and the NPLs (Giannopoulos 2018). From the overall study of the findings it could be identified that to a certain extent the factor conditions that were evaluated by Giannopoulos had an impact on the creation of the NPLs.

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The clear identification of the different factors are essential towards understanding the nature of cause. As Giannopoulos used a causal research study, the clear identification of the factor conditions which contributed towards the creation of NPLs are important. From the above research the banking associations and other financial institutions would be benefitted as the study clearly identified the causes of creation of NPL. The study on the behavioral aspects of the applicants and the manner in which comparison might be made between the creditable and non- creditable applicants would support the banking institutions in developing interventions for reducing the challenges related to NPL.

Limitations of the study

The study that was conducted by Giannopoulos was limited to the extent of identifying the causes of the NPL creation. The researcher failed to identify suitable interventions that might be strategically implemented by the banking and other financial institutions in order to reduce the occurrence of NPL.


Ari, M.A., Chen, S. and Ratnovski, M.L., 2019. The dynamics of non-performing loans during banking crises: a new database. International Monetary Fund.

Flynn, S.V. and Korcuska, J.S., 2018. Credible phenomenological research: A mixed‐methods study. Counselor Education and Supervision, 57(1), pp.34-50.

Giannopoulos, V., 2018. What Causes Non-Performing Loans? The Case of Greece Using Primary Accounting Data. Open Journal of Accounting, 7(04), p.191.

Karadima, M. and Louri, H., 2021. Economic policy uncertainty and non-performing loans: The moderating role of bank concentration. Finance Research Letters, 38, p.101458.

Kumar, R.R., Stauvermann, P.J., Patel, A. and Prasad, S.S., 2018. Determinants of non-performing loans in banking sector in small developing island states. Accounting Research Journal.

Mazreku, I., Morina, F., Misiri, V., Spiteri, J.V. and Grima, S., 2018. Determinants of the level of non-performing loans in commercial banks of transition countries.

Ozili, P.K., 2019. Non-performing loans and financial development: new evidence. The Journal of Risk Finance.

Ridder, H.G., 2017. The theory contribution of case study research designs. Business Research, 10(2), pp.281-305.

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