The Explanatory Variables of Non-Performing Loans in Albania, During and After the Financial Crisis

Abstract

The main objective of this study is to identify the determinants of non-performing loans in the Albanian banking sector during and after the global financial crisis. As the crisis changed a lot of equilibriums and set new ones, we find it interesting to focus on the identification of the main factors that have influenced credit risk in the Albanian banking sector for the period 2007-2017. The Ordinary Least Squares (OLS) method is applied to quarterly data for the Albanian banking sector, for identifying the determinants of credit risk (measured by non-performing loans ratio of the banking sector). Non-performing loans are affected mainly by macroeconomic factors such as economic growth rate, interest rates, foreign exchange rate, credit growth and crisis. Considerable effects have also the past values of the dependent variable. This paper aims to enrich the existing literature on determinants of non-performing loans, and particularly for Albania, where a larger dataset and the latest data are analyzed.

Keywords: non-performing loans (NPLs), credit risk, determinants, Albanian banking sector