Volatility analysis of NPL rate in the Albanian banking system through econometric modeling

AuthorErvis Bejko - Elsa Tomja
PositionAlpha Bank Albania - Lecturer: Agricultural University of Tirana
ISSN 2410-759X
Acces online at www.iipccl.org
Balkan Journal of Interdisciplinary Research
IIPCCL Publishing, Tirana-Albania Vol. 1 No. 2
September 2015
Volatility analysis of NPL rate in the Albanian banking system through
econometric modeling
Msc. Ervis Bejko
Alpha Bank Albania,
Msc.Elsa Tomja
2Lecturer: Agricultural University of Tirana,
Economic situation of the last five years has resulted in significant changes in terms of
financial stability in the country and the region. In Albania, the economic situation is
undergoing profound difficulties and the banking system in the country is suffering
high levels of bad loans. In this article we try to study the volatility of the bad loans
percentage. Initially we studied the macroeconomic factors that are responsible for the
fluctuation of bad loans and then we applied the stress test to analyze the viability of
their macroeconomic shocks. Two methods will be used in this study, linear econometric
methods and stress tests methods.
Keywords: NPL, GDP, Inflation; Unemployement .
In the last decade, many countries have experienced problems in the banking sector.
In today’s business, risk plays a critical role. Almost in every recommendation it is
required from business managers and executives to balance risk and return in order
to decrease the number of businesses who lose solvency capabilities. In the banking
system, risk management takes a special importance, where regulators are responsible
for protection against failures of the banking system and the economy. Although
banks have very similar risks to other businesses, the main risks that particularly
affect banks are: Credit risk which is the address in the project navigation and
occupies 60-70% by weight of the total risk, operational risk, liquidity risk, market
risk and interest rate risk. If we consider the sectors that contribute to economic
growth, we observe changes in the distribution over the last decade. For example
the construction sector, which until 2008-2009, generated added value for the
economy, in the last five years the sector has become almost invisible. Also lending
to this sector is also responsible for a significant portion of not returned loans. The
level of lending for businesses, individuals and the government continues to bind
the economic growth but this depends on the credited sector. According to (Lusha,
Aliaj, & Xhabija, Nentor 2013), only lending to services sector realizes the value
added to the economy while lending in other sectors such as construction, agriculture
and industry does not reflect the value added in the economy for the period 2007-
2013. The level of demand for short-term or long-term loans has been increasingly
decreasing in recent years; this is conditioned by the slow performance of economic
activity, uncertainty regarding future projects and prudent behavior (reserved) of
banks in terms of lending, taking into consideration the previous experiences. Even

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