THE INFLUENCE OF MACROECONOMIC FACTORS ON NON-PERFORMING LOANS IN THE COUNTRIES OF THE WESTERN BALKANS
THE INFLUENCE OF MACROECONOMIC FACTORS ON NON-PERFORMING LOANS IN THE COUNTRIES OF THE WESTERN BALKANS

Summary/Abstract: The banking system of the Western Balkan countries (WBC hereafter) has undergone great development on the grounds of lending activities, where the issues of non-performing loans, as a crucial activity of the banking sector reached its peak, especially during the COVID-19 period. This paper analyzes the state of non-performing loans, and the reasons for the increase in the level of non-performing loans in the banking system of the Western Balkan countries, by relying on a panel data set of the WBC 6, (Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Montenegro, and Serbia), covering in principle the yearly period 2000 - 2019. The empirical assessment focuses on the relationship between the non-performing loans as a dependent variable and a set of macroeconomic explanatory variables such are GDP, unemployment rate, inflation rate, and interest rate, using the post-estimation results of Hausman Taylor econometric technique, suggested by the testing procedure of the panel data. The findings of the study suggest the agglomeration effect of non-performing loans due to the significant lagged dependent variable and the enhancement effect of non-performing loans driven by unemployment and interest rates.

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