Determinants of non-performing loans: Evidence from Euro-area countries

•Euro-area banks (1990-2015) suffer from increasing losses due to NPLs.•NPLs are affected by bank- and country -specific variables.•GMM estimations show that income tax and output gap exert a significant influence.•Such findings may be important when designing macro-prudential and fiscal policies.

The objective of this paper is to identify the main determinants of non-performing loans in the euro-area banking system for the period 1990Q1-2015Q2 using GMM estimations. On top of the bank- and country-specific variables proposed by the literature the roles of income tax and output gap are for the first time examined and found to be significant. Our results could be helpful when designing macro-prudential and fiscal policies.