Analysis of factors that influence non-performing loans with econometric model: Albanian case

Abstract

International financial crisis of the last decade had a negative influence in almost all banking system of the world. The difficulties on managing problems brought into consideration that the balance of risk exposure versus return is very difficult to be controlled. Managers of the businesses are working hard to meet liquidity needs and to continue their business which is greatly supported by financial intermediaries. On the other side, banks and their regulators are following risk problems with increased management measures, as stability of financial system was undermined seriously from financial crisis and structural problems in all countries. There are several risks that all kind of businesses are exposed, but in this paper we are focused to credit risk in the banking system, which is counted as 60-70% of total risk exposure. Recently the Albanian economy is having low growth with the banking system suffering from the increase of non- performing loans (NPL). This reflects liquidity and performance problems for businesses with increased risk on financial stability. This paper deals with proof of macroeconomic factors that influence NPL rate for Albania. Verification of these factors can support the proper policies that reduce the NPL level. The analysis includes the comparison of Albanian and Italian data on the trends and factors that affect NPL rate. Albanian Central Bank and government are trying to apply prudent regulations based on analysis of factors driving bad performance. The analysis and findings of this paper is based on existing literature that is applied with a regression model.