Macroeconomic Factors That Affect the Quality of Lending in Albania

Abstract

The credit risk is one of the main risks in commercial banks and the ability to manage it meanly affects banks’ stability. In this paper, is analyzed the link between the macroeconomic developments especially GDP growth and interest loan rate and the banking credit risk measure by NPLR. This paper analyzes the data of commercial banks in Albania over the time period from 2005Q1 to 2013Q1. This study includes 36 observations from banking system. Besides bank many specific characteristics, in this study is included a set of macroeconomic and industry-specific variables into our regression analyses. Our results show that there exist significant differences in profitability between commercial banks in Switzerland and that these differences can to a large extent be explained by the factors included in our analysis. Also, this model specification, which includes several variables that have not been considered before, generates new insights for a better understanding of banking performance. Employing dynamic panel data approaches we conclude that the banking credit risk is significantly affected by the macroeconomic environment: the credit risk increases when GDP growth and is also negatively affected by an arise of the interest loan rate. The set of 2 independent variables as factors determining the changes in amount of doubtful and non-performing loans was created. These variables were calculated from data imported by Central Bank and annual reports the research has confirmed that the amount of doubtful and non-performing loans in banks highly depends on macroeconomic changes.

Keywords: Credit risk; macroeconomic factors; banking system; GDP growth, interest rate