Bank-specific and macroeconomic determinants of non-performing loans in the Republic of Macedonia: Comparative analysis of enterprise and household NPLs

Abstract

The purpose of this paper is to explore the influence of bankspecific and macroeconomic determinants of all non-performing loans (NPLs) to enterprises and households in the Republic of Macedonia. The analysis is performed for the whole banking sector for the period 2003Q4 to 2014Q4, by applying the Autoregressive Distributed Lag Modelling Approach (ARDL), the co-integration model implementing quarterly time series. The results of the research indicate that the profitability of banks, the growth of loans to enterprises and to households respectively, as well as the growth of GDP, all have a negative impact, while banks' solvency and unemployment have a positive impact on the rise of non-performing loans in both models. In addition, regarding enterprises, we found that the exchange rate has a positive and statistically significant impact on the level of NPLs, while inflation has a negative and statistically significant impact on the increase in non-performing loans to households. The main contribution of this paper is that the results obtained by econometric analysis may be used for forecasting non-performing loans several years in the future, as well as for stress-testing both the entire banking system and the individual banks operating in the Republic of Macedonia.

IFRS 9 transition effect on equity in a post bank recovery environment: the case of Slovenia

“…At this stage the bank has to recognise all credit losses that will occur if default occurs within 12-months. The amount of non-performing loans is related to bank-specific and macroeconomic determinants (Kjosevski, Petkovski & Naumovska, 2019). Expected credit loss is therefore estimated on all available information such as bank's actual credit loss experience, forward looking information on payment status and macroeconomic variables (GDP growth, changes in unemployment rate, property prices etc.).…”

Industry-Specific and Macroeconomic Determinants of Non-Performing Loans: A Comparative Analysis of ARDL and VECM

“…Kjosevski [31] conducted sector-wise research and found NPLs of both the enterprise and household were negatively sensitive to profitability, loan growth, and better economic conditions while banks' solvency and unemployment were positively correlated. The authors of [19] examined NPLs determinants in the Eurozone and, like past examinations, found bank-specific and macroeconomic elements had a remarkable impact clarifying variations in NPLs [32,33].…”

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“…Loan Growth Rate (Zheng, Bhowmik, & Sarker, 2019); Capital Adequacy Ratio (CAR) (Kjosevski, Petkovski, & Naumovska, 2019); Income Diversification (Templeton & Severiens, 1992;Winton, 1999); Liquidity Ratio (Manab, Theng, & Md-Rus, 2015); Bank Credit Growth (Shkodra & Ismajli, 2017;Vithessonthi, 2016) and Operating Expenses and Bank Size (Gulati, Goswami, & Kumar, 2019;Sufian & Noor, 2012).…”