INTERNAL AND EXTERNAL FACTORS OF NON-PERFORMING LOANS: THE EXAMPLE OF THE BANKING SECTOR IN BOSNIA AND HERZEGOVINA
Almir Alihodžić - Faculty of Economics, University of Zenica, 72000 Zenica, Bosnia and Herzegovina
DOI: https://doi.org/10.31410/Balkans.JETSS.2022.5.2.93-104
Almir Alihodžić - Faculty of Economics, University of Zenica, 72000 Zenica, Bosnia and Herzegovina
DOI: https://doi.org/10.31410/Balkans.JETSS.2022.5.2.93-104
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Balkans Journal of Emerging Trends in Social Sciences, (2022) , Vol 5, No 2
ISSN: 2620-164X |
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Abstract: Non-performing loans are loans that do not generate income for banks and represent one of the most sensitive categories of a bank’s balance sheet. Their increase can affect both the liquidity and the solvency of banks. This paper investigates internal (specific) and external (macroeconomic) determinants of non-performing loans of the banking sector in Bosnia and Herzegovina for the period 2008: Q1 - 2020: Q4 including correlation and regression analysis. The results of the research showed that the following independent variables have the strongest impact on non-performing loans as a dependent variable: unemployment rate, provisions to non-performing loans, and real GDP growth rate. On the other hand, the independent variable return on equity had the weakest impact on non-performing loans.
Keywords: Non-performing loans, Unemployment rate, Provisions to non-performing loans, Fixed effect model, Random effect model, Return on equity.
JEL Classification B22 · G20 · G21
Keywords: Non-performing loans, Unemployment rate, Provisions to non-performing loans, Fixed effect model, Random effect model, Return on equity.
JEL Classification B22 · G20 · G21
REFERENCES
Alton, R. G., & Hazen, J. H. (2001). As economy flounders, do we see a rise in problem loans, Federal Reserve Bank of St. Louis, 11(4), 45-65.
Babouček, I., & Jančar, M. (2005). Effect of macroeconomic shocks to the quality of the aggregate loan portfolio. Czech National Bank. Working Paper Series 1, 1-62.
Beck, R., Jakubik, P., & Piloiu, A. (2015). Key Determinants of Non-performing Loans: New Evidence from a Global Sample. Open Economies Review, 26(3), 525-550. https://doi.org/10.1007/s11079-015-9358-8
Chmelarova, V. (2007). The Hausman test and some alternatives, with heteroskedastic data. M.S. Louisiana State University, USA. https://doi.org/10.31390/gradschool_dissertations.936
Cohen, J. W. (1988). Statistical power analysis for the behavioral sciences (2nd ed.). Hillsdale, NJ: Lawrence Erlbaum Associates.
Dash, M. K., & Kabra, G. (2010). The Determinants of Non-Performing Assets in Indian Commercial Bank: An Econometric Study, Middle Eastern Finance and Economics, 7, 94-106.
Diaconaşu, D. E., Popescu, M., & Socoliuc, O. R. (2014). Macroeconomic determinants of non-performing loans in emerging markets’, in Roman, A. and Anton, S.G. (Eds.): Monetary, Banking and Financial Issues in Central and Eastern EU Member Countries: How Can Central and Eastern EU Members Overcome the Current Economic Crisis?, Alexandru Ioan Cuza University of Iaşi, Iasi, 67–73.
Đukić, Đ. (2011). Upravljanje rizicima i kapitalom u bankama. Centar za izdavačku delatnost Ekonomskog fakulteta u Beogradu: Beograd.
Glogowski, A. (2008). Macroeconomic determinants of Polish banks’ loan losses – results of a panel data study, National Bank of Poland Working Paper, No. 53.
Godlewski, C. J. (2005). Bank capital and credit risk taking in emerging market economies. Journal of Banking Regulation, 6(2), 128-145. https://doi.org/10.1057/palgrave.jbr.2340187
Koch, T. W., & MacDonald, S. S. (2009). Bank Management. Cengage Learning. Boston. USA.
Kumar, V., & Kishore, M. P. (2019). Macroeconomic and bank specific determinants of nonperforming loans in UAE conventional bank, Journal of Banking and Finance Management, 2(1), 1-12.
Louzis, D. P., Vouldis, A. T., & Metaxas, V. L. (2010). Macroeconomic and bank-specific determinants of non-performing loans in Greece: a comparative study of mortgage, business and consumer loan portfolios. Bank of Greece, Working Paper, No. 118.
Marcucci, J., & Quagliariello, M. (2008). Is Bank Portfolio Risk Procyclical? Evidence from Italy Using a Vector Autoregression. Journal of International Financial Markets, Institutions and Money, 18(1), 46- 63.
Nkusu, M. (2011). Nonperforming Loans and Macrofinancial Vulnerabilities in Advanced Economies. IMF Working paper, 11(61), 1-27. https://doi.org/10.5089/9781455297740.001
Plakalović, N., & Alihodžić, A. (2015). Novac, banke i finansijska tržišta. Ekonomski fakultet Banja luka: Banja luka.
Quagliariello, M. (2007). Banks’ Riskiness Over the Business Cycle: A Panel Analysis on Italian Intermediaries. Applied Financial Economics, 17(2), 119-138. https://doi.org/10.1080/09603100500486501
Rachman, R. A., Kadarusman, Y. B., Anggriono, K., & Setiadi, R. (2018). Bank-specific factors affecting non-performing loans in developing countries: case study of Indonesia, The Journal of Asian Finance, Economics and Business (JAFEB), 5(2), 35-42. https://doi.
org/10.13106/jafeb.2018.vol5.no2.35
Sinkey, J. F. J. (1989). Commercial Bank Financial Management in the Financial-Services Industry, third edition, NewYork: Macmillan Publishing Co.
Škarica, B. (2014). Determinants of non-performing loans in Central and Eastern European countries’, Financial Theory and Practice, 38, 37–59. https://doi.org/10.3326/fintp.38.1.2
Vaskov, M., Ilievska, M., & Debnikov, P. (2012). Macroeconomic determinants of Non-performing loans in Macedonian banking system, Panel data analysis, presentation, April 2012, National bank of the Republic of Macedonia.
https://hr.wikipedia.org
www.investopedia.com
www.bankingsupervision.europa.eu
REFERENCES
Alton, R. G., & Hazen, J. H. (2001). As economy flounders, do we see a rise in problem loans, Federal Reserve Bank of St. Louis, 11(4), 45-65.
Babouček, I., & Jančar, M. (2005). Effect of macroeconomic shocks to the quality of the aggregate loan portfolio. Czech National Bank. Working Paper Series 1, 1-62.
Beck, R., Jakubik, P., & Piloiu, A. (2015). Key Determinants of Non-performing Loans: New Evidence from a Global Sample. Open Economies Review, 26(3), 525-550. https://doi.org/10.1007/s11079-015-9358-8
Chmelarova, V. (2007). The Hausman test and some alternatives, with heteroskedastic data. M.S. Louisiana State University, USA. https://doi.org/10.31390/gradschool_dissertations.936
Cohen, J. W. (1988). Statistical power analysis for the behavioral sciences (2nd ed.). Hillsdale, NJ: Lawrence Erlbaum Associates.
Dash, M. K., & Kabra, G. (2010). The Determinants of Non-Performing Assets in Indian Commercial Bank: An Econometric Study, Middle Eastern Finance and Economics, 7, 94-106.
Diaconaşu, D. E., Popescu, M., & Socoliuc, O. R. (2014). Macroeconomic determinants of non-performing loans in emerging markets’, in Roman, A. and Anton, S.G. (Eds.): Monetary, Banking and Financial Issues in Central and Eastern EU Member Countries: How Can Central and Eastern EU Members Overcome the Current Economic Crisis?, Alexandru Ioan Cuza University of Iaşi, Iasi, 67–73.
Đukić, Đ. (2011). Upravljanje rizicima i kapitalom u bankama. Centar za izdavačku delatnost Ekonomskog fakulteta u Beogradu: Beograd.
Glogowski, A. (2008). Macroeconomic determinants of Polish banks’ loan losses – results of a panel data study, National Bank of Poland Working Paper, No. 53.
Godlewski, C. J. (2005). Bank capital and credit risk taking in emerging market economies. Journal of Banking Regulation, 6(2), 128-145. https://doi.org/10.1057/palgrave.jbr.2340187
Koch, T. W., & MacDonald, S. S. (2009). Bank Management. Cengage Learning. Boston. USA.
Kumar, V., & Kishore, M. P. (2019). Macroeconomic and bank specific determinants of nonperforming loans in UAE conventional bank, Journal of Banking and Finance Management, 2(1), 1-12.
Louzis, D. P., Vouldis, A. T., & Metaxas, V. L. (2010). Macroeconomic and bank-specific determinants of non-performing loans in Greece: a comparative study of mortgage, business and consumer loan portfolios. Bank of Greece, Working Paper, No. 118.
Marcucci, J., & Quagliariello, M. (2008). Is Bank Portfolio Risk Procyclical? Evidence from Italy Using a Vector Autoregression. Journal of International Financial Markets, Institutions and Money, 18(1), 46- 63.
Nkusu, M. (2011). Nonperforming Loans and Macrofinancial Vulnerabilities in Advanced Economies. IMF Working paper, 11(61), 1-27. https://doi.org/10.5089/9781455297740.001
Plakalović, N., & Alihodžić, A. (2015). Novac, banke i finansijska tržišta. Ekonomski fakultet Banja luka: Banja luka.
Quagliariello, M. (2007). Banks’ Riskiness Over the Business Cycle: A Panel Analysis on Italian Intermediaries. Applied Financial Economics, 17(2), 119-138. https://doi.org/10.1080/09603100500486501
Rachman, R. A., Kadarusman, Y. B., Anggriono, K., & Setiadi, R. (2018). Bank-specific factors affecting non-performing loans in developing countries: case study of Indonesia, The Journal of Asian Finance, Economics and Business (JAFEB), 5(2), 35-42. https://doi.
org/10.13106/jafeb.2018.vol5.no2.35
Sinkey, J. F. J. (1989). Commercial Bank Financial Management in the Financial-Services Industry, third edition, NewYork: Macmillan Publishing Co.
Škarica, B. (2014). Determinants of non-performing loans in Central and Eastern European countries’, Financial Theory and Practice, 38, 37–59. https://doi.org/10.3326/fintp.38.1.2
Vaskov, M., Ilievska, M., & Debnikov, P. (2012). Macroeconomic determinants of Non-performing loans in Macedonian banking system, Panel data analysis, presentation, April 2012, National bank of the Republic of Macedonia.
https://hr.wikipedia.org
www.investopedia.com
www.bankingsupervision.europa.eu
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