"Study Regarding The Influence Of The Unemployment Rate Over Non-performing Loans In Romania Using The Correlation Indicator "

Abstract

In this paper it is studied the influence of unemployment rate on non-performing loans in Romania. The following issues are presented: the definition of nonperforming loans, the criteria used by Romania in the definition of nonperforming loans (NPL), Romanian legislation that regulates nonperforming loans, the causes leading to nonperforming loans and the national regulates regarding unemployment. The paper contains also graphic representation of the analysis: 1) nonperforming loans in the world, 2) credits in Romania by the five risk classes for years 2006-2011; 3) nonperforming loans based on the unemployment rate in Romania. Finally, we established the correlation between unemployment rate and nonperforming loans in Romania, with the usage of the "Pearson" correlation coefficient. Introduction " There are various definitions of this term depending on the type of loan and on the lender's policy. When the payments of interests and principal are past due by 90 days or more, a loan is considered nonperforming and the debtor is insolvent " (Dictionary of Banking Terms – Third Edition -Thomas Fitch). Loan portfolio quality deteriorated during the time period 2009-2011 and the banks recorded high levels of nonperforming loans. Repayment behavior of the borrowers' bank records negative effects. The causes are numerous, including the decreasing of living standards in conjunction with an increased unemployment rate. In the same period a significant increase in unemployment rate has been recorded and also in the number of unemployed. This paper presents bank loan portfolio deterioration and causes that led to this deterioration. An empirical study is included to demonstrate how the unemployment rate and non-performing loans are connected. We developed a research hypothesis Pearson correlation coefficient and we studied the situation of the Romanian banking system during 2008-2011. With Pearson correlation coefficient we want to study if there is a correlation between unemployment rate and nonperforming loans in Romania case. Literature review Despite a surge in the research efforts put into modeling credit and default risk during the past decade, few studies have incorporated the impact that macroeconomic conditions have on business defaults (Carling, Kenneth; Jacobson, Tor; Lindé, Jesper; Roszbach, Kasper, 2007).