The Comparative Analysis of Credit Risk Determinants In the Banking Sector of the Baltic States

Grigori Fainstein (grigori.fainstein@tseba.ttu.ee) and Igor Novikov (classic@infonet.ee)
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Grigori Fainstein: Tallinn University of Technology, ESTONIA
Igor Novikov: Tallinn University of Technology, ESTONIA

Review of Economics & Finance, 2011, vol. 1, 20-45

Abstract: A vector error correction model is applied to empirically investigate and compare the influence of macroeconomic and real estate market variables on the level of non-performing loans in the three Baltic States. A secondary goal is to analyze the effect of constant loan portfolio growth on the level of non-performing loans in the related countries. The research indicates that the most significant reason for the growth of non-performing loans was caused by the changes in the real GDP in all the three Baltic States. The increasing influence of rapid loan portfolio growth proves the assumption that banks underestimated the changes in the macroeconomic variables during the analyzed periods, especially in Latvia. Rapid growth of the real estate market played an important role in Latvia and Lithuania, but it was not as crucial as it has been previously assumed in Estonia.

Keywords: Non-performing loans; Banking system; Credit risk determinants; Vector error correction model (search for similar items in EconPapers)
JEL-codes: C32 C52 E44 G21 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (19)

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