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

• Author: Ervis Bejko - Elsa Tomja
• Position: Alpha Bank Albania - Lecturer: Agricultural University of Tirana
• Pages: 164-169

ISSN 2410-759X

Acces online at www.iipccl.org

Balkan Journal of Interdisciplinary Research

IIPCCL Publishing, Tirana-Albania Vol. 1 No. 2

September 2015

164

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,

Abstract

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 .

Introduction

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