The Impact of Bank Specific Variables on the Non Performing Loans Ratio in the Albanian Banking System

Abstract

The aim of this paper is to analyze the relationship between the non performing loans ratio and several bank specific variables in order to understand at what extent the banking variables will be able to explain the non performing loan ratio. The paper is based on the hypothesis that the NPLs ratio is influenced from the bank variables. It is to mention that actually the Albanian banking system is suffering from an ongoing growth of NPLs ratio and this very concerning taking into account that NPLs ratio is about 24% of the total loans. The relation between the NPLs ratio and the dependent variables will be tested by a simple regression model like OLS estimation. The independent variable will be the NPLs ratio while as independent variables are used: loans level, net interest margin, loan to asset ratio, capital adequacy ratio and return on equity. In the regression model are used panel data for a period from Q1 2002 – Q4 2012.

Keywords: non performing loans, banking system, net interest margin, return on equity