THE INFLUENCE OF MACROECONOMIC FACTORS ON NON-PERFORMING LOANS IN THE COUNTRIES OF THE WESTERN BALKANS

Sindise SALIHI, Lindita MUAREMI, Elsana EJUPI, Edrina EMINI

Abstract

The banking system of the Western Balkan countries (WBC hereafter) has undergone great development on the grounds of lending activities, where the issues of non-performing loans, as a crucial activity of the banking sector reached its peak, especially during the COVID-19 period. This paper analyzes the state of non-performing loans, and the reasons for the increase in the level of non-performing loans in the banking system of the Western Balkan countries, by relying on a panel data set of the WBC 6, (Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Montenegro, and Serbia), covering in principle the yearly period 2000 - 2019. The empirical assessment focuses on the relationship between the non-performing loans as a dependent variable and a set of macroeconomic explanatory variables such are GDP, unemployment rate, inflation rate, and interest rate, using the post-estimation results of Hausman Taylor econometric technique, suggested by the testing procedure of the panel data. The findings of the study suggest the agglomeration effect of non-performing loans due to the significant lagged dependent variable and the enhancement effect of non-performing loans driven by unemployment and interest rates.

Pages: 174 - 180