NPLs modeling in the banking sector of Bosnia and Herzegovina

Abstract

We have chosen non-performing loans in Bosnia and Herzegovina's banking sector for the subject of this research. Our goal was to create models for forecasting of their movements. In addition to different simple linear regression models and time series analysis, we have also used the tools of technical analysis, which is major innovation in this area. Variables affecting non-performing loans are: matured receivables, GDP growth rate, and interest rate spread. The most important result of this research is the verification of our hypothesis that the tools of technical analysis can be used for forecasting the trends of non-performing loans. We have proved that different methodologies for prediction and different regression models, with different independent variables, suit different periods of NPLs development.