<abstract xmlns="http://www.w3.org/1999/xhtml"><p>After the financial deregulation that marked the last two decades of the 20th century, banks lost their monopolistic position and faced a number of competitors on the financial market. Fighting for their market share, banks began to grant loans under more relaxed terms. This policy increased the share of non-performing loans (NPLs) and ultimately increased credit risk in the banking sector. The share of non-performing loans in total loans indicates the quality of bank assets, so their analysis and trend are an important parameter in assessing the stability of the banking and overall financial sector. The paper aims to analyze the NPL trend in the banking sector of the Republic of Serbia in the period from 2010-2019 and, thus, identify determinants that significantly affect the extent of credit risk. The research uses vector autoregressive model (VAR), and the results confirm that gross domestic product, inflation, unemployment, return on total assets (ROA), cost efficiency, capital adequacy ratio, and income diversification affect NPLs. The analysis shows that the level of non-performing loans depends on a number of factors, both macroeconomic and bank-specific, which regulatory authorities must keep in mind when assessing the credit risk that banks face.</p></abstract>

After the financial deregulation that marked the last two decades of the 20th century, banks lost their monopolistic position and faced a number of competitors on the financial market. Fighting for their market share, banks began to grant loans under more relaxed terms. This policy increased the share of non-performing loans (NPLs) and ultimately increased credit risk in the banking sector. The share of non-performing loans in total loans indicates the quality of bank assets, so their analysis and trend are an important parameter in assessing the stability of the banking and overall financial sector. The paper aims to analyze the NPL trend in the banking sector of the Republic of Serbia in the period from 2010-2019 and, thus, identify determinants that significantly affect the extent of credit risk. The research uses vector autoregressive model (VAR), and the results confirm that gross domestic product, inflation, unemployment, return on total assets (ROA), cost efficiency, capital adequacy ratio, and income diversification affect NPLs. The analysis shows that the level of non-performing loans depends on a number of factors, both macroeconomic and bank-specific, which regulatory authorities must keep in mind when assessing the credit risk that banks face.

Analysis of Non-Performing Loans’ Determinants in the Banking Sector of the Republic of Serbia

Economic Themes

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

After the financial deregulation that marked the last two decades of the 20th century, banks lost their monopolistic position and faced a number of competitors...

Analysis of Non-Performing Loans’ Determinants in the Banking Sector of the Republic of Serbia

Published Online: Apr 27, 2021

Page range: 133 - 151

Received: Nov 25, 2020

Accepted: Dec 28, 2020

DOI: https://doi.org/10.2478/ethemes-2021-0008

Keywords
NPL, determinants, VAR, banking sector in RS

© 2021 Kristijan Ristić et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Analysis of Non-Performing Loans’ Determinants in the Banking Sector of the Republic of Serbia

Published Online: Apr 27, 2021

Page range: 133 - 151

Received: Nov 25, 2020

Accepted: Dec 28, 2020

DOI: https://doi.org/10.2478/ethemes-2021-0008

KeywordsNPL, determinants, VAR, banking sector in RS

© 2021 Kristijan Ristić et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Keywords
NPL, determinants, VAR, banking sector in RS