The Effect of Banking Concentration on Non-Performing Loans: The Case of Albania

Abstract

Purpose: The article examines the correlation among banking concentration and non – performing loans using datasets of the Albanian banking sector during 2005-2017. We investigated the non–performing loans affected by market structural variables, banking variables and macroeconomic variables. Approach/Methodology/Design: We test the loan concentration impact on non – performing loans through linear regression models. Findings: The Albanian banking sector proved the ambiguous results and the sound correlation in long run among concentration and non–performing loans. Outcome confirmed the negative effect of return on assets and the average interest rate for non-performing loans. Meanwhile the total loans, exchange rates and Gross Domestic Product is affected positively by the non-performing loans. Practical Implications: The Albanian banking sector operated to moderate concentration despite banks’ mergers recently. It has linked with the increasing non–performing loans ratio past to the last quarter of 2008. We demonstrated the empirical impacts that they ought to be taken into consideration by the banking sector. Originality/Value: The research provides empirical results encouraging further investigations on the subject matter.