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Determinants Of Nonperforming Loans In Romania And Central, Eastern And Southeastern Europe

Author

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  • COSTACHE, Cosmin Laurențiu

    (Bucharest University of Economic Studies, Romania.)

Abstract

This paper investigates the macroeconomic and bank-specific determinants of nonperforming loans in Romania and selected Central and Eastern European countries. Using a combination of econometric approaches, the study employs fixed-effects panel regressions for 18 Romanian banks over the period 2007Q4 – 2023Q4, a Bayesian Vector Autoregression model for Romania, and a Panel VAR framework for six Central, Eastern and South-Eastern European (CESEE) countries over the period 2008Q4 – 2024Q4. The results indicate that bank profitability, capitalisation, and operational efficiency play a significant role in shaping credit risk at the bank level. At the macroeconomic level, economic growth and exchange rate appreciation reduce NPLs, while unemployment, interest rates, and inflation increase default risk. Impulse response functions reveal strong persistence in NPL dynamics and highlight unemployment as the most robust and influential determinant of credit risk across all models. The findings suggest that credit risk is driven by a complex interaction between macroeconomic conditions and bank-specific characteristics, with labour market developments representing the main transmission channel between the real economy and financial stability.

Suggested Citation

  • COSTACHE, Cosmin Laurențiu, 2026. "Determinants Of Nonperforming Loans In Romania And Central, Eastern And Southeastern Europe," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 30(1), pages 26-49, March.
    • Handle: RePEc:vls:finstu:v:30:y:2026:i:1:p:26-49
    DOI: https://doi.org/10.65672/fs.2026.1.2
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • 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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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