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Empirical Panel Analysis of Non-performing Loans in the Czech Republic. What are their Determinants and How Strong is their Impact on the Real Economy?

Author

Listed:
  • Mihail Petkovski

    (Faculty of Economics, Skopje, Republic of Macedonia)

  • Jordan Kjosevski

    (MoneyMax Financial, Ohrid, Republic of Macedonia)

  • Kiril Jovanovski

    (Faculty of Economics, Skopje, Republic of Macedonia)

Abstract

This paper examines the link between determinants of non-performing loans (NPLs) and their macroeconomic impact in the Czech Republic, using two complementary approaches. First, we explore macroeconomic and bank-specific determinants of NPLs for a panel of 22 banks from the Czech Republic, using annual data for the period 2005-2016.For our analysis, we apply difference Generalised Method of Moments. Empirical results provide evidence that the most important macroeconomic factors influencing NPLs are GDP growth, inflation, and unemployment. As for the bank-specific determinants, we found that return on assets, return on equity growth of gross loans, and equity to total assets ratio, size of the banks and foreign ownership have an impact on the amount of NPLs. Second, we investigate the feedback between NPLs and its macroeconomic determinants. The results suggest that the real economy responds to NPLs, and the analysis also indicates that there are strong feedback effects from macroeconomic conditions, such as domestic credit to private sector, GDP growth, unemployment, and inflation, to NPLs.

Suggested Citation

  • Mihail Petkovski & Jordan Kjosevski & Kiril Jovanovski, 2018. "Empirical Panel Analysis of Non-performing Loans in the Czech Republic. What are their Determinants and How Strong is their Impact on the Real Economy?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(5), pages 460-490, October.
    • Handle: RePEc:fau:fauart:v:68:y:2018:i:5:p:460-490
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    Cited by:

    1. Jordan Kjosevski & Mihail Petkovski & Aleksandar Stojkov, 2020. "The impact of macroeconomic and financial factors on shadow banking in the new EU member states," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 407-427.
    2. Alexandra Horobet & Magdalena Radulescu & Lucian Belascu & Sandra Maria Dita, 2021. "Determinants of Bank Profitability in CEE Countries: Evidence from GMM Panel Data Estimates," JRFM, MDPI, vol. 14(7), pages 1-23, July.
    3. Dominika Ehrenbergerova & Simona Malovana, 2019. "Introducing Macro-Financial Variables into a Semi-Structural Model," Working Papers 2019/6, Czech National Bank.
    4. Ayrton Psaila & Jonathan Spiteri & Simon Grima, 2019. "The Impact of Non-Performing Loans on the Profitability of Listed Euro-Mediterranean Commercial Banks," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 166-196.

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    More about this item

    Keywords

    non-performing loans; macroeconomic determinants; bank-specific determinants; Czech; Generalised Method of Moments;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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