Credit portfolio quality of Italian Mutual Guarantee Credit Institutions in the financial crisis: an empirical comparison with Cooperative Banks

This paper aims at analyzing credit quality characteristics of supervised Italian Mutual Guarantee Credit Institutions (MGCIs) supporting Small and Medium Enterprises (SMEs). The prevailing literature on this subject, mainly descriptive, highlights how informational asymmetries and geographical proximity are able to justify their double-intermediation effect. Our study instead focuses on supervised MGCIs and provides evidence on the determinants of impaired guarantees in the current deteriorated economic environment. Moreover, we compare the performance experienced by both MGCIs and Cooperative Banks (CBs) in order to assess whether there are differences in terms of product, risk and portfolio management variances. Furthermore, we analyze the geographical distribution within these intermediaries to control for territorial biases. We provide evidence that the impairments of MGCIs are positively related with the intermediaries’ size and negatively with the regulatory capital. On the other hand, the CBs’ non-performing loans of are highly dependent on net loan interest income. Our results show a difference in the credit portfolio quality between the two types of intermediaries operating in the same region but only for the year 2011. Finally, we show that portfolio quality is strongly influenced by the geographical area in which intermediaries are established only for CBs.