Determinants of Non-Performing Loans in Central and Eastern European Countries
This paper analyses the determinants of the changes in non-performing loans (NPL) ratio in selected European emerging markets. The model was estimated on a panel dataset using fixed effects estimator for seven Central and Eastern European (CEE) countries between Q3:2007 and Q3:2012. The analyzed countries are Bulgaria, Croatia, Czech Republic, Hungary, Latvia, Romania and Slovakia. Although the literature on NPLs is quite extensive, this is the first empirical research on the countries of CEE region using aggregate, country – level data on problem loans. The results suggest that the primary cause of high levels of NPLs is an economic slowdown, which is evident from statistically significant and economically large coefficients on GDP, unemployment and inflation rate.
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