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Cyclicality of the banking sector performance and macro environment in the Czech republic, Slovakia and Slovenia

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  • Mejra Festić
  • Dejan Romih
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    Abstract

    An exposure to macroeconomic risk factors across banks is a source of systemic risk that influences the banking sector performance. In this paper, we present some evidence on macroeconomic variables affecting the non-performing loans (NPL) ratio in the Czech Republic, Slovakia and Slovenia. The GDP growth might have improved borrowers' ability to serve their bank loans in Slovenia, meanwhile the accelerating NPL ratio dynamics has failed to support the hypothesis that the GDP growth fosters an improvement in the NPL ratio in the case of Slovakia. Meanwhile deceleration in the NPL ratio on export impulses has supported a procyclical theory in the Czech Republic, Slovakia and Slovenia. The response of non-performing loans to inflation supports the hypothesis about the lowering inflation that decelerates the NPL ratio. Savings have accelerated the NPL ratio in the case of Slovakia and Slovenia. The banking sector performance is possibly reflecting a favourable assessment of the economic growth and an increasing indebtedness of private sector could become causes of concern if the macroeconomic environment should develop less favourably.

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    Bibliographic Info

    Article provided by University of Economics, Prague in its journal Prague Economic Papers.

    Volume (Year): 2008 (2008)
    Issue (Month): 2 ()
    Pages: 99-117

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    Handle: RePEc:prg:jnlpep:v:2008:y:2008:i:2:id:323:p:99-117

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    Related research

    Keywords: non-performing loans; macro impulses; economic growth; cyclicality;

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    References

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    1. Raghuram G. Rajan, 2005. "Has Financial Development Made the World Riskier?," NBER Working Papers 11728, National Bureau of Economic Research, Inc.
    2. Christopher A. Sims & Tao Zha, 1994. "Error Bands for Impulse Responses," Cowles Foundation Discussion Papers 1085, Cowles Foundation for Research in Economics, Yale University.
    3. Guillermo A. Calvo & Enrique G. Mendoza, 2000. "Contagion, Globalization, and the Volatility of Capital Flows," NBER Chapters, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 15-41 National Bureau of Economic Research, Inc.
    4. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    5. Brzoza-Brzezina, Michal, 2005. "Lending booms in the new EU Member States: will euro adoption matter?," Working Paper Series 0543, European Central Bank.
    6. Sebastian Edwards, 2001. "Exchange Rate Regimes, Capital Flows and Crisis Prevention," NBER Working Papers 8529, National Bureau of Economic Research, Inc.
    7. Breuss, Fritz & Fink, Gerhard & Haiss, Peter, 2004. "How well prepared are the New Member States for the European Monetary Union?," Journal of Policy Modeling, Elsevier, vol. 26(7), pages 769-791, October.
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    Cited by:
    1. Tomáš Tichý, 2010. "Examination of Portfolio Currency Risk Estimation by Means of Lévy Models," Politická ekonomie, University of Economics, Prague, vol. 2010(4), pages 504-521.

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