Abstract

The purpose of this article is to examine the impact of the shock increase, in the value of nonperforming loans, on the equity level and profitability of 141 banks in 18 countries of Central Eastern South Europe (CESE). This study is important for assessing the financial stability of banks in this region in the face of the continuing negative effects of the COVID-19 pandemic. Based on the annual data, as of the end of 2020, from the S&P Global database, stress tests were carried out to check what value of NPL growth, over the next year, will lead to breach the regulatory capital requirements in domestic sectors and in individual groups of banks. The results indicate that the banks in CESE were well capitalized and had the ability to maintain capital requirements with a 12% increase in nonperforming loans. The resilience of domestic banking sectors varies, and it is higher in non-EU countries. Smaller and non-public banks show a greater ability to preserve the appropriate level of equity, although there is a risk that they may postpone the time of provisioning credit risk and additionally increase lending to lower the NPL ratio. Larger banks are more profitable in times of crisis. The results of the research are important for assessing the stability of the banking sector in CESE during the crisis and can be used by financial supervision of the region’s countries and banking market analysts.

Highlights

  • IntroductionAcademic Editors: Giuliana Birindelli and Klaus Reiner Schenk-Hoppé

  • The study used a scenario-based model developed by Barua and Barua [39] to assess the implications of the COVID-19 pandemic for the profitability and financial stability of banks in Central Eastern South Europe (CESE) countries

  • Using the Formula (1), the values of nonperforming loans were determined as a result of the one-year exposure to the COVID-19 pandemic and the final values of equity (Formula (2))

Read more

Summary

Introduction

Academic Editors: Giuliana Birindelli and Klaus Reiner Schenk-Hoppé. Publisher’s Note: MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations. The COVID-19 pandemic caused the worst crisis in the global economy since the. It slowed down, and temporarily froze, the functioning of both the real and financial sectors, including banks.

Objectives
Methods
Results
Conclusion
Full Text
Published version (Free)

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call