Macroeconomic determinants of nonperforming loans of Romanian banks

Abstract

The banking sector plays an important role in the development of any economy. The performance of the loans in bank portfolios is a critical issue for the banking sector. The increased number of nonperforming loans (NPLs) after the financial crisis of 2008 has questioned the robustness of many banks and the stability of the entire sector. Our study aims to present the most important aspects related to NPLs and to investigate some macroeconomic determinant factors affecting the rate of NPLs in Romania. Based on a set of data for the period 2009-2019, the analysis of NPLs was made using linear regression. The results showed that all selected independent variables (exchange rates of the most used currencies (EUR, USD and CHF), unemployment rate, and inflation rate) have a significant impact on the dependent variable NPL. The study reveals strong correlations between NPLs and the macroeconomic factors studied and that the Romanian economy is clearly connected to the quality of the loan portfolios. Additionally, an econometric analysis of the empirical causes of NPLs shows that the RON-CHF exchange rate has been the main factor in increasing the NPL ratio in the last 5 years in Romania.