The Efect of Credit Risk on the Banking Profitability: A Case on Albania (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). .
Journal of Eastern European and Central Asian Research (JEECAR), 2021
Due to their importance, commercial banks currently play a very important role in national financial systems. The profitability of commercial banks depends on how they manage their loans, and credit risk management is thus crucial in the banking system, risk management is significant activity of commercial bank. The main purpose of this study is to observe the extent to which bank profitability is dependent on credit risk management, with a focus on commercial banks in the Western Balkans (Kosovo, Albania, North Macedonia and Serbia). The results reveal a certain assured correlation among credit risk as well as the profitability of banks, where the ratio of non-performing loans (NLPR) has a positive effect on return on equity (ROE) and return on assets (ROA). Capital Insufficiency (CAR) shows that positive dependence is without any statistical significance on return on equity (ROE) and return on assets (ROA).
Credit Risk and Profitability in Banking Sector in Bosnia and Herzegovina
Economy & Business Journal, 2018
Financial system of Bosnia and Herzegovina is bank-based system. There are twenty-eight banks in banking sector. Loans dominate in bank's assets and there is source for bank profitability. Authors in this paper will analyse credit risk expose of banks measured with non-performing loans ratio (NPL) in period 2005-2016. Changes in economic environment have impact on banks’ credit risk. First aim of this paper is to test correlation between changes in economic present measured by indicators (GDP, inflation, and monetary aggregates) and non-performing loans. Second aim, is to test correlation between non-performing loans and profitability in banking sector.
Commercial Bank Performance and Credit Risk 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 i...
Credit risk and commercial banks’ performance in Albania
Cybernetics and Systems, 2018
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
The effect of credit risk on the financial performance of commercial banks in Balkan countries
Corporate and Business Strategy Review
This study aims to examine the effect of credit risk on the profitability of financial institutions. For research, we have collected secondary data from the relevant institutions of the Western Balkan states such as Kosovo, Albania, North Macedonia, Serbia, Croatia, Montenegro, and Bosnia and Herzegovina. In total, there are 26 commercial banks from 2010 to 2022 that serve in these countries. We consider information from three panels that categorize state-owned banks, private banks, or multinational banks according to their ownership structure. Return on assets (ROA) or return on equity (ROE) were used as surrogates for financial performance measures, while the percentage of bad loans was used to measure credit risk (Furhmann, 2022). Where the research objective was to explore the relationship between credit risk and financial performance in commercial banks operating in the Balkan countries, to understand the factors that affect credit risk, and to suggest measures to increase the ...
Statistical and Econometric Analysis of Financial Indicators for Six Albanian Commercial Banks
Mediterranean Journal of Social Sciences, 2014
The banking system in Albania has made important challenges during last 23 years. Intermediation of banks have served to Albanian economic development through lending and payments system, while mobilizing the savings of households and other financial sources. There are some studies on the tendencies and performance of main financial indicators for the banking system. However, these studies realized from supervisory authority (the Bank of Albania) are giving more information on aggregate level. Our study problem, in this article, is an approach on the development and performance of some banks in Albanian banking system. Our objective is to show how some important ratios of the banking system have evolved in time, the differences among the banks and in general their efficiency and performance. Data we are using are main financial indicators of 2009-2012 from six month series. The main ratios are: ROA (Return on Assets): X1 ROE (Return on Equity-net return after taxes): X2 Loans / Deposits: X3 Equity / Risk Weighted Assets: X4 Expenses / Revenues (expenses for one ALL1 revenue
European Scientific Journal, 2016
This paper examines the relationship between regulatory capital and credit risk within the Albanian banking sector. We estimate an equation which tries to capture the relationship among regulatory capital, nonperforming loans, profitability, total assets, liquidity and the level of growth in the GDP. The data is grouped and the analysis is performed in accordance with three banking groups. The grouping of the banks is in accordance with their size in the system and reflects the grouping used by the central bank for regulatory purposes. The model developed can be used to forecast required levels of CAR and it suggests that in the Albanian banking system, as well as for each bank group separately, the relationship between CAR and NPL is negative, the relationship between CAR and assets is negative for an unchanged level of regulatory capital, the relationship between CAR and profitability is positive, whereas the relationship between CAR and liquidity is negative. The effects of the c...
The Impact of Credit Risk on The Profitability With Characteristics Bank as Control Variables
JAK (Jurnal Akuntansi) Kajian Ilmiah Akuntansi
The role of a bank cannot be separated from the existence of credit loans. On the other hand, credit loans will be profitable for banks but have the risk of default. In order to determine the extent of the influence of bad loans on return on assets with the characteristics of the bank as a controller in the banking sector listed on the Indonesia Stock Exchange in 2015-2019, this research is aimed at. Puposive sampling was chosen as a sampling technique where the data obtained were 23 companies with a 5-year observation period. The process of data analysis was carried out through multiple linear regression analysis. The statistical application used is the SPSS Statistic 25 application. The results found from this study, simultaneously bad loans have an influence on return on assets. Partially, net performing loans have a negative and significant effect on return on assets. Then, the Loan to Deposit Ratio has a positive and significant effect on the return on assets. The existence of ...
International Scientific Journal Monte, 2019
Banks are the most important participants in the financial system, but also the most significant and largest financial institutions around the world, measured through their share in the total financial sector assets. Banks play a significant role in economic growth, namely by diversifying the risk to their activity. Interest rate risk is one of the most important financial risks of each bank which the banks face. Each risk is in itself a direct or indirect negative impact on the profit, activity, or realization of the ultimate goal of the banks. The risk of a change in interest rates in the portfolios of banking activities is a risk of loss arising from unfavourable changes in interest rates, as seen by the bank. The research in this paper concentrates on several directions with a common goal-the role and the need for bank profitability in today's conditions. The main research question is if in the research is a significant link between non-performing loans and bank profitability? Based on these goals, the research pays special attention to the importance of the asset management companies, from which we determine the determinants of the profitability of the banking system and we analyzed them from 1998 to 2016. For this purpose, we used Ordinary Least Square the method with the determination of the determinants, where it is noted that the non-performing loans showed a negative correlation with the level of the profitability in the Republic of North Macedoniaand are statistically significant. It is recommended that regulators draw up regulations and monitoring tools that will cause early warning signals about possible failures of the bank due to accumulation of nonperforming loans.