The Impact of Macroeconomic Factors on the Level of Nonperforming Loans (Case of Albania)

Abstract

The aim of this study is to define the impact of macroeconomic factors on the level of nonperforming loans. Increasing the level of nonperforming loan in the banking system, especially after 2008 has made that many banking field researchers try to find the key factors that have brought this progressive augmentation and disturbing. This paper investigates and analyze the main reason of increasing nonperforming loans in the Albanian banking system, in the period of 2002-2015. The methodology used consist on the vector autoregression test to show off the connection between the level of nonperforming loans and certain macroeconomic factors where non-performing loans are taken as dependent variables and macroeconomic factors like; GDP, Interest rate on loan, Unemployment, Inflation and Remittances as independent variables. The data are taken from INSTAT, Bank of Albania and other sites related from 2002 to 2015 calculated on quarterly basis. The analysis reveal that the most significant impact was from Interest rate which has a positive impact on nonperforming loans. The study also concluded that some other factors that has a significant impact were, remittance effecting negatively the level of nonperforming loan and unemployment effecting positively the level of nonperforming loans.