IMPACT OF MACROECONOMIC FACTORS IN NONPERFORMING LOANS IN KOSOVO

Abstract

An efficient and developed banking system is essential for the growth of any economy and the purpose of any banking system is to operate profitably in order to maintain sustainability and financial stability. Banks carry out many activities to make a profit, and the main activity of each bank is lending, thus enabling consumption and investment in the economy. Despite the importance of this activity in terms of income for banks, the lending process is not as easy as one might imagine. During this activity, banks faced delays from borrowers, which resulted in non-performing loans, as an obstacle to the efficiency of banking activities. The level of these loans varies from country to country and is nowadays considered as an integral part of the commercial banking of each country. There are many factors that directly or indirectly affect the level of these loans and the key influential factors are considered the macroeconomic factors. They are considered to be the main cause of the increase in non-performing loans as they generally affect all sectors of the economy. As a result of the negative reversal of these factors, borrowers will encounter liquidity shortages, which in turn will increase the likelihood of delays in fulfilling liabilities to the bank, in this case directly affecting the level of nonperforming loans. The key macroeconomic factors examined in the literature are Economic Growth, Unemployment, Inflation, Credit Interest Rates and Exchange Rates.The purpose of this paper is to analyze the impact of macroeconomic factors such as GDP Growth, Inflation, Interest Rates on credits and Unemployment on the level of non-performing loans in Kosovo by looking at macroeconomic indicators over the period 2010 - 2018. The purpose of this paper is to analyze the impact of macroeconomic factors such as GDP Growth, Inflation, Interest Rates on the credits and Unemployment on the level of non-performing loans in Kosovo by looking at macroeconomic indicators over the period 2010 - 2018. A multiple regression model was applied to see the effect of these factors on the level of non-performing loans in Kosovo over the years taken in the study. To realize the purpose of the study through this model are defined macroeconomic factors as independent variables as necessary for analysis and is seeing their impact in non-performing loans defined in study as the dependent variable. The results show that interest rates are considered as the main macroeconomic factor affecting the level of nonperforming loans in Kosovo and is the main factor positively related to this type of loans. In recent years, the decline of interest rates in the banking sector has had a positive impact on the decline of non-performing loans, which has increased the financial stability within this sector.