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Determinants Of Nonperforming Loans In Central And Eastern European Countries: Macroeconomic Indicators And Credit Discipline

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  • Bogdan-Gabriel MOINESCU

    () (Academy of Economic Studies, Money and Banking Department, 6 Piata Romana, Bucharest, 010374)

Abstract

Anticipating the nonperforming loans dynamics on the basis of macroeconomic credit risk models is crucial for shaping adequate economic policy mix to prevent disorderly deleveraging in the banking system. The added value of this paper is twofold. First, we apply reputed conditional risk model referred to as Credit Portfolio View in a regional context to test whether different patterns of registered NPLs during 2003-2011 are driven by domestic economic performances in CEE countries. Second, we turn to dynamic panel regressions with fixed effects to determine whether there are material structural differences among CE Eeconomies in terms of reimbursing behaviour. Econometric results confirm that GDP growth is the prominent macroeconomic explanatory variable of nonperforming loans developments among CEE economies. Moreover, the larger the amplitude and standard deviation of the economic cycle are, the higher the NPL ratio jumps during recession period. Monetary conditions are also important, but to a lesser extent. Although labour market indicators do have informational content for modelling NPLs dynamics, their presence in the multivariate panel regressions is affected by existing strong dependency to economic growth variables. Furthermore, fixed effects were not found statistically relevant, suggesting that there are no major differences in terms of credit discipline across the CEE region. Under this setting, continued refraining from promoting domestic legislative initiatives that would impact the reimbursing behaviour is crucial for avoiding a major disruption in the real economy for many years.

Suggested Citation

  • Bogdan-Gabriel MOINESCU, 2012. "Determinants Of Nonperforming Loans In Central And Eastern European Countries: Macroeconomic Indicators And Credit Discipline," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 10, pages 47-58, December.
  • Handle: RePEc:aic:revebs:y:2012:i:10:moinescub
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    References listed on IDEAS

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    1. Marcucci, Juri & Quagliariello, Mario, 2008. "Is bank portfolio riskiness procyclical: Evidence from Italy using a vector autoregression," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(1), pages 46-63, February.
    2. Thomas C. Wilson, 1998. "Portfolio credit risk," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 71-82.
    3. Michael Boss & Martin Fenz & Johannes Pann & Claus Puhr & Martin Schneider & Eva Ubl, 2009. "Modeling Credit Risk through the Austrian Business Cycle: An Update of the OeNB Model," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 17, pages 85-101.
    4. Stephen D. Williamson, 1985. "Financial Intermediation, Business Failures, and Real Business Cycles," UWO Department of Economics Working Papers 8507, University of Western Ontario, Department of Economics.
    5. Petr Jakubik & Christian Schmieder, 2008. "Stress Testing Credit Risk: Is the Czech Republic Different from Germany?," Working Papers 2008/9, Czech National Bank.
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    Cited by:

    1. repec:rmk:rmkbae:v:6:y:2019:i:1:p:41-64 is not listed on IDEAS
    2. repec:rnd:arjebs:v:8:y:2016:i:5:p:39-55 is not listed on IDEAS
    3. Ruja, Catalin, 2014. "Macro Stress-Testing Credit Risk in Romanian Banking System," MPRA Paper 58244, University Library of Munich, Germany.
    4. Nikola Radivojevic & Jelena Jovovic, . "Examining of Determinants of Non-Performing Loans," Prague Economic Papers, University of Economics, Prague, vol. 0, pages 1-17.

    More about this item

    Keywords

    macro credit risk models; nonperforming loans; deleveraging; economic cycle; financial conditions; credit discipline; emerging markets; panel regressions;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • 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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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