The Impact of Macroeconomic and Bank Specific Factors on Albanian Non-Performing Loans

Abstract

Credit risk measurement of the banking system, the dominant component of the financial system of a country, is an important aspect where the interest of academics, economic agents and other professionals has been considerably increased, especially following the global financial crisis. In the last decade, non-performing loans have been in the spotlight almost all over the world, since their large and uncontrolled increase would lead to the eventual bankruptcy of the banking system as a whole. Analysis of the factors affecting credit risk for the banking system is an important analysis and can be seen as the key for credit risk management. This starts by the identification of direct and indirect determinants which exhibit an impact on credit risk, followed by the assessment of the impact (negative or positive impact). The main objective of this paper is to analyse the link between the macroeconomic developments and the banking credit risk in Albania, recently affected by unfavorable economic and financial conditions and to which, on this matter, the literature has not given a particular attention yet. The econometric model used is that of multiple linear regression where as the dependent variable is obtained the indicator of non-performing loans of the Albanian banking system and as independent variables are chosen a number of macroeconomic indicators and indicators of assets and liabilities of the system itself. Employing data approaches to this country over the period 2005-2014, I conclude that the banking credit risk is significantly affected by the macroeconomic environment: the credit risk increases when GDP growth, credit growth rate and the share price indices decrease and rises when the interest rate and loan to deposit ratio increase. Moreover, it is also positively affected by an appreciation of the real exchange rate.

Keywords

• Banking System,Credit Risk,Macroeconomic Determinants,Non Performing Loans

Kaynakça

1. Boudriga, Taktak and Defi, Banking supervision and nonperforming loans: a cross-country analysis, Journal of Financial Economic Policy Vol. 1 No. 4, 2009, pp. 286 – 318, 2009.