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The Impact of Seasonality on the Implementation of Value at Risk (VaR) Models for Predicting Future Non Profit Loans (NPL) Values in Albania

Author

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  • Eris Zeqo
  • Lindita Mukli
  • Jona Mulliri

Abstract

One of the main problems in the Albanian financial market is the high rates of Non Profit Loans. As part of this problem, banks need to predict and calculate the level of reserve funds (provisions) to cover the possible losses from these loans. Currently these calculations are made based on the standard method which does not take in consideration many factors, including seasonality. The objective of this paper is to study if there is seasonality in the variance of NPL values for Albanian market. It is part of a study in relation to the possibility for the use of Value at Risk (VaR) models to predict future values of Non Profit Loans (NPL) in Albania. Using the official data from the Bank of Albania we first study the NPL time series by creating an initial predicting VaR model of future NPL values. Then the data are grouped under 3 months intervals and are studied to see if they have seasonality and if the existence of seasonality can improve the initial model.

Suggested Citation

  • Eris Zeqo & Lindita Mukli & Jona Mulliri, 2016. "The Impact of Seasonality on the Implementation of Value at Risk (VaR) Models for Predicting Future Non Profit Loans (NPL) Values in Albania," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 5, December.
    • Handle: RePEc:bjz:ajisjr:1633
    DOI: 10.5901/ajis.2016.v5n3s1p579
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    References listed on IDEAS

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    1. Martin Hibbeln, 2010. "Risk Management in Credit Portfolios," Contributions to Economics, Springer, number 978-3-7908-2607-4, May.
    2. Adrian Blundell-Wignall & Paul Atkinson, 2010. "Thinking beyond Basel III: Necessary Solutions for Capital and Liquidity," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2010(1), pages 9-33.
    3. repec:pal:coneco:978-3-7908-2607-4 is not listed on IDEAS
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