THE MACROECONOMIC DETERMINANTS OF CREDIT RISK IN THE ALBANIAN BANKING SECTOR

Albina Hysaj
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Albina Hysaj: Faculty of Economics and Administrative Sciences, Epoka University, Tirana, Albania

Journal of Financial and Monetary Economics, 2023, vol. 11, issue 1, 161-167

Abstract: The Albanian financial system, due to the lack of financial market, development is mainly based on the banking system. The banking system has a decisive role in the financial economy of the country as the banks are the main intermediaries and the main source of financing. Considering its role, the developments and challenges of the banking system are important for the development and soundness of the economy of Albania. The 2007-2008 global financial crisis has shown that the management of banks’ risks especially credit risk is very important not only for the national financial system but at the international level as well. Through an empirical analysis, by employing a multiple regression model, the study aims to investigate the effect of main macroeconomic variables such as unemployment, inflation, lending interest rate, GDP growth rate, and exchange rate on nonperforming loans rate for the period from 2010 until 2022. The data are retrieved from the database of the World Bank and the E-Views software is used to analyze the collected data. The empirical findings of the study imply that the inflation rate, the exchange rate, and the unemployment rate, are significant determinants of the level of non-performing loans. The employed test fails to prove that the GDP growth rate and lending interest rate are significant in determining the rate of non-performing loans. The findings suggest that when the inflation rate increases, the rate of non-performing loans decreases, while when the unemployment rate increases the rate of nonperforming loans increases as well. Moreover, when the Euro becomes more expensive in terms of Albanian Lek, the rate of non-performing loans increases.

Keywords: credit risk; non-performing loans; macroeconomic (search for similar items in EconPapers)
JEL-codes: C32 E51 G21 (search for similar items in EconPapers)
Date: 2023
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