Economic Growth and Loans with Problems: The Case of Albania

Purpose: According to economic theories and empirical literature, it turns out that the growth of gross domestic product affects the level of non-performing loans. This study aims to analyze the relationship between economic growth and non-performing loans for the period 2000-2020. Design/Methodology/Approach: To achieve this objective, we have used data from the Bank of Albania. To analyze this relationship in more detail we have estimated the regression model between the NPL level and economic growth as an independent variable with 1 and 2 time lags. Findings: If we refer to the series trends the connection seems to be negative. To show we calculate the correlation coefficient between the two variables. For the variables NPL and GDP growth we used the ADF test on stationarity and beyond we see if the series converge between them using the Johansen test. Practical Implications: Based on this analysis, the study will show whether a supportive macroeconomic environment is needed to stimulate economic growth by helping to reduce the levels of non-performing loans. Originality/Value: It is proved that as long as the economy is stable and banks are profitable and have adequate capital, non-performing loans are at an appropriate level for banks.