Key Macroeconomic Drivers on Reducing Non Performing Loans in Albania

Abstract

The financial system in Albania is really fragile, mainly focused in banking system. This banking system faced a sharp rise in non-performing loans after 2009. The level of NPL-s has increased from 10.48% on 2009 to the pick of 23.49% on 2013. Then, it started the decline arriving to 13.23% on 2017. The focus of this study it is the determination of the main macroeconomic factors affecting the level of bad loans. We tested statistically the role of GDP growth, inflation, unemployment level, Money Aggregate M2, Exchange rate and interest rates for loans, in the level of NPL-s. The data were taken from World Bank and Bank of Albania database. The data were elaborated through statistical program E-views 10. We conducted a multiple regression and the macroeconomic factors explaining NPL-s resulted: the GDP growth, the monetary aggregate M2 and the interest of loan. This connection resulted negatively correlated with GDP growth which began to grow after 2013 arriving at 3.84% on 2017, and positively correlated with M2 which has experienced a slight increase in these years; and interest of loans which is still low in Albania, decreasing from 2001 and on. These macroeconomic factors should be taken in consideration by Albanian authorities when compiling their plans and strategies.