EMPIRICAL ANALYSIS OF PROFITABILITY, NON PERFORMING LOANS AND OPERATIONAL EFFICIENCY IN MACEDONIAN BANKING SECTOR

Abstract

In this paper are examined impact of share of non performing loans and cost to income ratio to banks’ profitability measured through rate of return of average assets in macedonian banking sector.  For that aim, have been used date on quarter basis from 2010 until Q3 2019 which are grouped according to the size of assets of banks i.e large, medium and small. In the analysis have been used descriptive statistics and models for estimating multiple regression using the method of ordinary least squares. Results from the analysis show that share of non performing loans and cost to income ratio has significant statistical impact to rate of return on average assets. With  increasing the share of non performing loans and with increasing the cost to income ratio, are decreasing the rate of return on average assets in all three groups of banks, and that is predominantly showed in group of large banks in macedonian banking sector. Thus, in traditional banking model is confirmed  that the credit portfolio plays a dominant role in the operation of the banks. Loans are a major source of banks’ revenues, but at the same time they are also connected with highest risks. Problems in the credit portfolio are basic generators of problems, also in the other areas of banks’ operations  and determine the profitable positions of the banks.