The up-coming crisis and loan portfolio quality in Romania and Bulgaria

Sebastijan Repina and Mejra Festic

International Journal of Business Environment, 2010, vol. 3, issue 4, 445-459

Abstract: We analysed the relationship between the non-performing loan ratio and macroeconomic variables as a source of systemic risk, in order to assess the vulnerability of the banking sector to bad-loan performance on a macroeconomic level by panel regression. The theory of procyclicality between net exports, GDP, foreign direct investments and the non-performing loan ratio was proven. Increased economic activity improved the loan portfolio quality of the banking sector, as indicated by a lower NPL ratio. Due to a high share of loans denominated in a foreign currency and the fact of productivity gains in the tradable sector, the appreciation of the real exchange rate contributed to an improvement in loan portfolio quality. A slowdown in economic activity is likely to accelerate the non-performing loan ratio in Bulgaria and Romania.

Keywords: systemic risk; economic growth; cyclicality; loan portfolio quality; international cyclical movements; Bulgaria; Romania; crises; non-performing loan ratios; macroeconomic variables; banks; banking; vulnerability; bad loans; panel regression; procyclicality; net exports; gross domestic product; GDP; foreign direct investment; FDI; economic activity; foreign currencies; productivity gains; tradable sectors; exchange rates; economic slowdowns; business environment; emerging markets. (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijbenv:v:3:y:2010:i:4:p:445-459

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