How inefficient is an inefficient credit process? An analysis of the Italian banking system

Purpose The paper aims to disentangle the physiological credit risk from coming inefficient screening and monitoring management process. analysis is conducted on a sample of 338 Italian banks–56 joint-stock banks (SpA), 23 cooperative (Popolari) 259 mutual (BCCs)–over time period 2006–2017. Design/methodology/approach authors use maximum likelihood method estimate efficient frontier, as set best practices, which minimises defined basis level loans granted, technical structure loan portfolio (such lines, mortgages, consumer other categories) interest rate charges. Findings empirical results show that increase in non-performing (NPLs) related both severe protracted recession Italy, significantly reduced borrowers' capacity service their debt, factors, such banks' lending policies with limited work-out defaulted loans. Originality/value propose new approach study performance With stochastic risk, assumed by bank according its activity choices, separated resulting an In addition, analyse determinants excess NPLs. This aspect considered particularly original because scientific contributions consider causes NPLs have largely focused not considering part, linked bank's operational strategy therefore compressible any case attributable mismanagement or moral hazard.