Bad Loans, Good Governance: Thresholds, Spillovers, and the New Econometrics of Non-Performing Loans in EU

This paper synthesises and extends the empirical literature on bank non-performing loans (NPLs), moving from classical macroeconomic and bank-level explanations to the 2026 research frontier of non-linear thresholds, spatial network externalities, explainable machine learning, ESG governance, and climate-risk channels. The central argument is that NPLs are not merely the product of bad luck or adverse macroeconomic cycles. They are regime-dependent outcomes shaped jointly by institutional depth, currency exposure, spatial connectedness, bank behaviour, risk culture, and governance quality. Comparing Western Europe, Central, Eastern and Southeastern Europe (CESEE), and developing-market benchmarks, the paper shows that macroeconomic cycles globally influence credit risk, but structural and institutional factors determine when NPLs become persistent, contagious, and systemically damaging. The review offers an integrated taxonomy, a comparative methodological synthesis, and differentiated policy implications for macroprudential and resolution frameworks.