Abstract
Abstract. This article presents an analysis of macroeconomic factors and their impact on the percentage of non-performing loans (NPLs) in commercial banks of the EU countries. This problem is relevant because in recent years many EU countries had the economic downturns that can be visible in the main macroeconomic indicators. Also, banks have met the growth of non-performing loans when the debtors were not able to meet their financial obligations. The Basel III Agreement notes the necessity to consider the economic conditions of a country when assessing the credit risk of loan applicants. The results of this research can be useful for banks, because the main relations between macroeconomics and non-performing loans have been revealed. Since 2009, Lithuania has one of the highest NPL percentage in the EU, and the meaningful impact of economic deterioration on the debtors‘ ability to repay debts to banks has been proven. The same situation was ascertained in other EU countries with imperfect economic conditions. Conversely, it has been estimated that banking systems in the EU countries with developed economies are not very sensitive to the business cycle fluctuations. So, in Lithuanian banks, when managing credit risk, the consideration of economic conditions is very important.Key words: banks, credit risk, macroeconomics, non-performing loans
Highlights
Banks are very important constituents in the financial system of countries and play a fundamental role in the global economy
The systematic risk factors have a strong impact on all financial institutions in the market, and the sources of systematic risk are related to variables that are beyond the bank’s control
This research deals with the current banking problem of non-performing loans which have shown a significant growth in the EU banks since 2009
Summary
Banks are very important constituents in the financial system of countries and play a fundamental role in the global economy. If the financial system does not work properly, its problems have a strong impact on the whole economy. For this reason, policymakers, regulators, academics and practitioners pay close attention to the soundness and stability of this sector in every country (Rodriguez-Moreno, Pena, 2013). According to Al-Jarrah (2012), the sources of risks-facing financial institutions can be divided into two main categories: systematic and non-systematic. The systematic risk factors have a strong impact on all financial institutions in the market, and the sources of systematic risk are related to variables that are beyond the bank’s control. The non-systematic sources of risk vary and are related partly to bank-specific variables.
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