MACROECONOMIC DETERMINANTS OF NONPERFORMING LOANS IN THE REPUBLIC OF NORTH MACEDONIA

Abstract

One of the main indicators of the banks’ financial performance is nonperforming loans. The level and dynamics of the non-performing loans mean facing the direct consequences of credit risk. Namely, the problem with the non-performing loans leads to greater  restriction of the banks’ performance on the credit market, thus limiting investments and consumption, and threatening economic growth and even financial stability. Accordingly, to manage non-performing loans efficiently, it is crucial to analyze their determinants. The main objective of the study is to examine the macroeconomic determinants of non-performing loans in the Republic of North Macedonia for the period from 2006 to 2021. The study is based on a time series analysis of secondary data obtained from reports issued by relevant institutions, through the development of an Auto-Regressive Distributed Lag (ARDL) model, to investigate the dependence of non-performing loans to total loans ratio as a target variable on several macroeconomic variables/regressors such as GDP growth rate, inflation rate, unemployment rate, loans interest rate, exchange rate, and gross loans to GDP ratio. The results show that, in a long run, all the regressors have a statistically insignificant impact on the target variable; only the exchange rate negatively affects the target variable, whilst all other regressors have a positive impact on it.