Authors: Sebastijan Repina, Mejra Festic
Addresses: EIPF – Economic Institute, Presernova cesta 21, Ljubljana 1000, Slovenia. ' Faculty of Economics and Business, University of Maribor, Slomskov trg 15, Maribor 2000, Slovenia; EIPF – Economic Institute, Presernova cesta 21, Ljubljana 1000, Slovenia
Abstract: We analysed the relationship between the non-performing loan ratio and macroeconomic variables as a source of systemic risk, in order to assess the vulnerability of the banking sector to bad-loan performance on a macroeconomic level by panel regression. The theory of procyclicality between net exports, GDP, foreign direct investments and the non-performing loan ratio was proven. Increased economic activity improved the loan portfolio quality of the banking sector, as indicated by a lower NPL ratio. Due to a high share of loans denominated in a foreign currency and the fact of productivity gains in the tradable sector, the appreciation of the real exchange rate contributed to an improvement in loan portfolio quality. A slowdown in economic activity is likely to accelerate the non-performing loan ratio in Bulgaria and Romania.
Keywords: systemic risk; economic growth; cyclicality; loan portfolio quality; international cyclical movements; Bulgaria; Romania; crises; non-performing loan ratios; macroeconomic variables; banks; banking; vulnerability; bad loans; panel regression; procyclicality; net exports; gross domestic product; GDP; foreign direct investment; FDI; economic activity; foreign currencies; productivity gains; tradable sectors; exchange rates; economic slowdowns; business environment; emerging markets.
International Journal of Business Environment, 2010 Vol.3 No.4, pp.445 - 459
Published online: 20 Dec 2010 *Full-text access for editors Access for subscribers Purchase this article Comment on this article