Risk management and profitability of commercial banks of Western Balkans countries of Kosovo, Albania, North Macedonia, and Serbia (original) (raw)
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Profitability is an indicator of the capacity of commercial banks to cope with their risk and/or capital growth, showing their competitiveness and measuring the quality of management. Credit risk is one of the significant risks of commercial banks by the nature of their activities. By effectively managing the exposure of commercial banks to credit risk, they not only support the viability and profitability of their business but also contribute to the system, stability and efficient allocation of capital to the economy. The purpose of the study was to determine whether there is a relationship between credit risk management and profitability in commercial banks in Albania. In this paper, there are four variables: ROA and ROE are the dependent variables, whereas non-performing loans (NPLs) and capital adequacy (CAR) are the independent variables. The main source of data collection are the annual reports for a 7year period (2008-2015) by the Albanian Association of Banks. For quantitative data analysis, multiple regression model was used (SPSS). .
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Współczesne Problemy Ekonomiczne
G l o b a l i z a t i o n 2010). This crisis motivated the reformulation of previous regulatory framework (such as Basel II) and urged reforms in the way of regulation of financial institutions. This research evaluates the performance of commercial banks in Kosovo during the period 2006-2012 through the method of analysis of financial ratios. The methodology used in the research is the statistical T-test. This is applied to analyze the impact of the recent financial crisis in the performance of commercial banks in Kosovo, focusing mainly on non-performing loans (loan quality of banks). The aim of this research is to analyze the performance of commercial banks in Kosovo, and to analyze the loan quality based mainly on growth trends in non-performing loans and the impact of the global financial crisis in the banking sector in Kosovo. Literature Review This section presents a review of the literature on performance of commercial banks in different countries which are taken as examples for analyzing the performance of commercial banks in the Republic of Kosovo. There is an increasing amount of research focusing on the global financial crisis of 2008 and the bankruptcy of many well-known global financial institutions. 1 Measuring banks' performance in general and commercial banks' performance in particular is the topic of many well-established researchers. Most of the published research is based on empirical evidence. (See Oral, Yolalan, 1990; Bonin et al., 2005). As part of the CAMELS 2 system, bank regulators apply financial ratios to evaluate the performance of banks. The empirical evidence concerning the application of financial ratios to evaluate the performance of banks includes research authored by Beaver (1966), Altman (1986) and Maishanu (2004). Reviewing the literature we can conclude that there are two general approaches for measuring bank performance. The first approach is based on accounting data, respectively on main application of banks' financial ratios while the second approach is based on econometric techniques. Kiyota (2009) undertook a two-phase research to investigate the effectiveness of profit-flow and cost of commercial banks from 29 African countries during the period 2000-2007. This research has applied a SFA approach to evaluate the effectiveness of profits and costs, as well as financial ratios and Tobit regression, in order to offer crosscountry evidence on the performance and efficiency of commercial banks in Africa. The
Credit risk and commercial banks’ performance in Albania
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The banking sector is a complex system composed of a large number of stakeholders that interacts in a non-simple way continuously and which plays the key role in economic development of each country. The economies of developing countries like Albania are characterized by high demand for credit due to increasing investment. The revenues are even higher when the risk is greater. Of the high related risk, crediting leads to high returns. Credit risk is one of the most important types of risk in the banking sector that affect the bank performance, as it exhibits loss probability because of the failure of debtor to fulfill its obligations to bank. In June 2016, the level of non-performing loans in Albania appears in 24.4% of total loans, representing the major obstacle to the development and performance of the banking sector in Albania. The purpose of the estimable model outlined in this section is to capture the effects of macroeconomic, bank specific factors and Herfindahl-Hirschmann index (HHI) in the industry of bank performance. We also include a range of bank-specific variables that have been used in previous empirical studies that examine drivers of bank performance. A recent decline in revenue was observed due to higher provisioning expenses, which reduce banks' profits. To identify factors affecting bank profitability, we have got to study those factors like bank-specific (internal) factors, industry specific and macroeconomic (external) factors. The internal factors that influence profitability are expressed in terms of efficiency, productivity, competition, concentration, soundness, safety and profitability. Industry specific factor is market concentration, while macroeconomic factors are Gross Domestic Product (GDP), Inflation Rate, and Real effective exchange rate (REER). In this paper, we will test whether lending decisions of all banks operating in Albania exhibit moral hazard. The study carried out an empirical investigation of the quantitative
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