1. bookVolume 5 (2016): Issue 2 (May 2016)
Journal Details
License
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English
access type Open Access

Determinants of Credit Growth: The Case of Montenegro

Published Online: 20 May 2016
Volume & Issue: Volume 5 (2016) - Issue 2 (May 2016)
Page range: 101 - 118
Received: 13 Nov 2015
Accepted: 28 Dec 2015
Journal Details
License
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English
Abstract

In the period before the crisis, Montenegro experienced a rapid credit growth, which coincided with the privatization of several banks and was followed by the entry of foreign banking groups, amplifying the banks’ lending process and increasing competition in this sector. This paper focuses on identification and estimation of determinants of credit growth in Montenegro, exploring both demand and supply side factors, and particularly paying attention to supply factors. Our findings confirm that positive economic developments and an increase in banks’ deposit potential lead to higher credit growth. Furthermore, our findings emphasize that the banking system soundness is decisive for promoting further bank’s lending activities. We provide evidence that the weakening of banks’ balance sheets, in terms of high non-performing loans and low solvency ratio, has a negative effect on credit supply.

In addition, this paper provides a nuanced analysis of the determinants of credit growth by allowing these to be different before and after the global financial crisis. The post-crisis model finds that credit supply indicators gained in importance in explaining credit growth, while the model in pre-crisis period provides evidence that both demand and supply indicators matter in explaining credit growth.

Keywords

JEL

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