Abstract
The determinant of the credit risk of banks in a developing country have limited data to analyze and limited participation in literature. Determinants of credit risk are very important in order to define the non-performing loans (NPL) in Kosovo banking systems. Even though banking system in Kosovo is the newest in region, it is comparable with banking systems to all places in regions (Albania, Serbia, Montenegro, Macedonia, Bosnia and Herzegovina, etc.).The main purpose of this paper is to classify some factors that influence credit risk in commercial banks in Kosovo. The research includes seven commercial banks for the period 2006–2015. Data analysis and interpretation are processed with Statistical Program for Social Sciences SPSS v.19.0.The effect of variations in the determinants of credit risk exposure is based on using a multivariate panel regression model. Our empirical results suggest that a significant relationship exists between credit risk and the following variables: Profitability (ROE and ROA), Inefficiency (IE), Loans to deposit ratio (LDR), Credit growth (CG) and Deposit rate (DR), while variables of Solvency (SR) and Credit rate (CR) are not statistically significant in terms of credit risk.
Highlights
Financial markets play a key role in facilitating risk sharing and efficient allocation of assets among investors (Chabakauri & Han, 2016)
Our empirical results suggest that a significant relationship exists between credit risk and the following variables: Profitability (ROE and rate (DR) while variables Profitability (ROA)), Inefficiency (IE), Loans to deposit ratio (LDR), Credit growth (CG) and Deposit rate (DR), while variables of Solvency (SR) and Credit rate (CR) are not statistically significant in terms of credit risk
Following on from the results we found out that a significant relationship exists between credit risk and the following variables: Profitability (ROE and ROA); Inefficiency (IE); Loans to deposit ratio (LDR); Credit growth (CG) and Deposit rate (DR), while variables Solvency (SR) and Credit rate are not statistically significant in terms of credit risk (CR)
Summary
Financial markets play a key role in facilitating risk sharing and efficient allocation of assets among investors (Chabakauri & Han, 2016). Based on the fact that debts include the major group of banking activities and are major source of gain for each bank as well, we consider that credit risk has an important influence and requires a special concentration. Because banking industry is considered as a sensitive industry taking into account the fact that it faces high and different risks KCB should take a special consideration when creating rules and laws to keep financial system stable which may influence the economy of Kosovo. According to KCB (KCB, Clients debt in banks in Kosovo, 2015) overload of debts in banks apart from direct risk to financial sector stability involves social and psychological influence of debtors and society in general.
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