Predicting LCR with GDP, NPLs and ROE

Abstract

This paper aims to examine drivers of Liquidity coverage ratio (LCR) in Croatia. The intention of this study is to examine and analyse the effect of Return on Equity (ROE), Non-performing Loans (NPL), and Gross domestic product (GDP) on Liquidity Coverage Ratio (LCR) in the Croatian banking sector. The population of this study is Croatian banking sector from q3 2016 to q3 2021. Empirical results suggested real GDP growth rates and NPL levels as LCR drivers in Croatia while effects from ROE were not empirically supported. The results of this study indicate NPLs and GDP simultaneously affect LCR. Consequently, the study has implications for banks in Croatia.

Dynamization Analysis of Capital Inflow, Credit Allocation, and Banking Performance using Panel Vector Autoregressive

“…The increase in capital inflows to the non-bank sector initially suppressed credit allocation in the banking group with high capital inflows to banks. In the banking group with low capital inflow to banks, there was a positive response but with a small value which could be seen on the Figue 3 in the middle.. Banks nominated the total response from both groups with high capital inflows to banks (Vukas et al, 2022). This result is the same as the IRF for banking in general (middle figure 1).…”

“…These results explained that banks with highher leverage actually experience a faster decline in ROE than banks with low leverage. These results can be explained by the presences of Hoang et al, (2021) and Vukas et al (2022).…”

“…High leverage shows the high total credit to the total deposit. Distribution according to leverage is crucial because it relates to the company's ability to create profits and performance (Hoang et al, 2021 andVukas et al 2022). The higher the leverage, the higher the liabilities the banking sector must bear.…”