Beyond inflation: The impact of energy prices on non-performing loans in the EU

This article analyses the level of non-performing loans (NPLs) in the European Union (EU) countries between 2014 and 2022, taking into account both standard and new proposals for variables such as energy prices. Using the econometric ARDL panel model, the traditionally used inflation indicators were replaced with a proposed energy price indicator, including normalised oil, natural gas, coal and CO₂ emission allowance (ETS) prices. The model results suggest that the energy price index can provide more valuable information about the level of NPLs than traditional inflation measures such as the HICP. In addition, a preliminary study of the impact of the share of renewable energy on the level of NPLs has shown that countries with a higher share of renewable energy are less susceptible to fluctuations in energy prices, which ultimately positively impacts financial stability. The results indicate that an in-depth energy market analysis can significantly enrich the understanding of financial stability in the context of the level of non-performing loans (NPLs).