Macroeconomic and bank-specific determinants of non-performing loans: the case of baltic states

• Published in: Empirica Vol. 48; no. 4; pp. 1009 - 1028
• Main Authors: Kjosevski, Jordan, Petkovski, Mihail
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-11-2021; Springer Nature B.V
• Subjects: Assets; Banking; Econometrics; Economics; Economics and Finance; Equity; Estimation; European Integration; Generalized method of moments; Industrial Organization; Inflation; International Economics; Loans; Macroeconomics; Macroeconomics/Monetary Economics//Financial Economics; Original Paper; Public debt; Public Finance; Unemployment; System generalized method of moments; F61; F62; Macroeconomic determinants; Baltic states; Bank-specific determinants; G21; G01; Non-performing loans
• ISSN: 0340-8744; 1573-6911
• DOI: 10.1007/s10663-020-09491-5

This study examines selected macroeconomic and bank-specific determinants of non-performing loans (NPLR) for a panel of 21commercial banks from the Baltics States (Estonia, Latvia and Lithuania), using annual data for the period 2005–2016. To avoid the risk of providing unconsistent and biased results by using only one estimation technique, in our study we implemented three alternative estimation models (fixed- effects model, difference Generalized Method of Moments and system Generalized Method of Moments). Empirical results provide evidence that the most important macroeconomic factors influencing NPLR are growth of GDP, public debt, inflation and unemployment. As for the bank-specific determinants, we found that equity to total assets ratio, return on assets, return on equity and growth of gross loans have an impact on the amount of NPLR.