Nonperforming Loans in Albania

Abstract

This thesis examines the continuous increase of nonperforming loans in Albania. The Albanian economy is facing many challenges since the collapse of the communism system. One of the main factors affecting nonperforming loans is global economic crisis of 2008. This uncertain macroeconomic environment in which this country currently is has directly affected the banking sector development. The other factor that has contributed in the increase of nonperforming loans is the decrease of incomes coming from emigrants. For this the variables taken in consideration as determinants of nonperforming loans are: real GDP; unemployment; inflation; loan interest rate and remittance. So this thesis is built on the hypothesis that the level of nonperforming loans depend on: real GDP; unemployment; inflation; loan interest rate; and remittance. To show that there exists a long run relationship between nonperforming loans and all these variables is applied Johansen multivariate co-integration test. The data taken from Bank of Albania are calculated on quarterly basis from 2003 to 2013. From the Johansen co-integration test is concluded that nonperforming loans and the other five variables: GDP; unemployment; inflation; loan interest rate and remittance are co-integrated however, in the long run this is a weak co-integration.