Transformations  in
Business & Economics

A VAR ANALYSIS OF THE EFFECT OF MACROECONOMIC VARIABLES ON NON-PERFORMING LOANS IN WESTERN BALKAN COUNTRIES
Ana Lalevic Filipovic, Aida Brkan Vejzovic, Milijana Novovic Buric, Sasa Vujosevic

ABSTRACT. Using panel vector autoregressive (VAR) approach, this paper analyses the influence of macroeconomic factors (GDP, inflation, interest rate, unemployment rate) on non-performing loans of banking sector (NPL) in the countries of Western Balkan, during the period ‎2005-2015. VAR model has confirmed the hypothesis that a significant number of macroeconomic variables have a statistically significant effect on NPL in Western Balkan countries. Also, the model has proven that the trend of bad bank loans in majority of these countries may be monitored using the analysis of the dynamics from the previous period. The main contribution of this manuscript are the achieved research results which may be useful for regulators in order to decrease the participation of bad loans in total loan potential of banks in the observed countries.

KEYWORDS:  macroeconomic indicators, NPL, VAR model, banking sector, Western Balkans.

JEL classification:  E59, O52, O11.