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Macroeconomic Environment and Banking Sector Soundness in CEE Countries

Author

Listed:
  • Irina Bilan

    (“Alexandru Ioan Cuza†University of Iasi)

  • Angela Roman

    (“Alexandru Ioan Cuza†University of Iasi)

Abstract

The aim of our paper is to empirically investigate the impact of the changes in macroeconomic environment on the financial soundness of the banking sector (as measured by bank Z-score) in 11 Central and Eastern European countries, over the period 2000-2014. The results of our empirical study indicate that the financial soundness of the banking sector in our sample countries is heavily influenced by unemployment and inflation rates, foreign exchange rate, current account balance, public debt, and financial depth. Overall, our study underlines the crucial importance of ensuring a healthy and sound macroeconomic environment for the financial soundness of banks. Also, our research highlights that, out of all the macroeconomic factors analyzed, the dynamics of bank credit to the private sector is the main risk factor for the soundness of the banking sector in CEE countries, which calls for its rigorous monitoring.

Suggested Citation

  • Irina Bilan & Angela Roman, 2016. "Macroeconomic Environment and Banking Sector Soundness in CEE Countries," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 421-426, February.
    • Handle: RePEc:ovi:oviste:v:xvi:y:2016:i:2:p:421-426
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    banks; bank soundness; financial risks; Z-score; macroeconomic variables;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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