The size of bank credit and its impact on the non-performing loan ratio: The mediating role of banking market power - An analytical study of the northern and western European Union countries (2010-2023)

Abstract

The research aims to determine the relationship between bank credit volume and non-performing loans in light of the strength of the banking sector market in Northern and Western European countries during the period 2010–2023, taking into account macroeconomic variables such as GDP growth, interest rates, and inflation. The research relied on official financial and banking data for several European Union countries. The nature of the research variables and the size and shape of the research sample, which produced a panel data model, required the adoption of multiple regression to analyze the relationship between market power and banking outcomes. The results showed that increased banking market concentration is associated with increased credit volum e granted to the private sector and a reduction in the proportion of non-performing loans, after controlling for economic variables. These results provide clear evidence that market power plays an important role in enhancing the efficiency and stability of the banking sector and contributes to expanding lending while reducing credit risks. The research also provides practical recommendations to enhance the role of major banks in directing credit and managing risk, while maintaining fair competition in the banking market.