IMPACT OF NON-PERFORMING LOANS ON THE BANKING SECTOR CAPITAL ADEQUACY, WITH THE PREDICTION OF THEIR MOVEMENTS Cover Image

IMPACT OF NON-PERFORMING LOANS ON THE BANKING SECTOR CAPITAL ADEQUACY, WITH THE PREDICTION OF THEIR MOVEMENTS
IMPACT OF NON-PERFORMING LOANS ON THE BANKING SECTOR CAPITAL ADEQUACY, WITH THE PREDICTION OF THEIR MOVEMENTS

Author(s): Kemal Kozarić, Edina Zunić
Subject(s): Supranational / Global Economy, Business Economy / Management, Economic policy, Methodology and research technology, Financial Markets
Published by: Ekonomski fakultet u Sarajevu
Keywords: non-performing loans; financial-stability; capital adequacy ratio; banking sector;

Summary/Abstract: This paper analyzes the impact of non-performing loans on Bosnia and Herzegovina banking sector financial stability. For that purposes Error Correction Model and Granger causation model were implemented. Results of Engle-Granger Error Correction model indicates on existence of long-term connection between banking sector financial stability and non-performing loans. Results of the Granger causality model indicates on causation of financial stability by non-performing loans and demonstrates short-term connection between observed variables. Based on these results, a prediction of non-performing loans movements was conducted. Results indicates that non-performing loans in Bosnia and Herzegovina banking sector will range between 0.5% and 16.41%. In order to determine the likelihood that nonperforming loans at the level of Bosnia and Herzegovina banking sector will rise or fall, a Monte Carlo simulation was conducted. This simulation showed that it is much more likely that non-performing loans will decrease, than it will rise.

  • Issue Year: 2019
  • Issue No: 37
  • Page Range: 58-74
  • Page Count: 17
  • Language: English
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