Determinants of non-performing loans in North Macedonia

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Petros Golitsis
Khurshid Khudoykulov
Savica Palanov
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Taylor & Francis Online
This paper aims to examine macroeconomic and bank-specific determinants of non-performing loans (NPLs) in the case of the Republic of North Macedonia. Following the respective literature review that indicates the GDP and the unemployment rate as the most relevant macroeconomic variables, and weighted average interest rate, gross loans, and lagged NPLs as the bank bank-specific ones, we apply an ARDL bounds testing approach to investigate the determinants of NPLs of this landlocked, new NATO member country that seeks access to the EU. The studied period is from the first quarter of 2005 to the second quarter of 2022, which includes apart from the severe financial crises, i.e. the Global Financial Crisis (GFC) of 2007–2009 and the European Sovereign Debt Crisis of 2010–2012, the Pandemic Covid-19 period and the Russian Invasion of Ukraine. Our research output provides statistical evidence that the strongest long-run impact on NPLs comes from unemployment, GDP and interest rates; while Gross Loans seem not to have any significant effect. Our findings, holding both in the short- and the long-run, bear signs that are consistent with the economic theory. Overall, we add in the understanding, measuring, and forecasting of NPLs in a country under transition, and propose corrective macroeconomic policy measures in mitigating the related pressure and shocks, especially under periods of prolonged uncertainty.
A nonperforming loan (NPL) is a loan in which the borrower has not made any payments of principal or interest for a certain period. In banking, commercial loans are considered nonperforming if the borrower is 90 days past due. NPLs occur during economic hardships and should be used under a proper credit portfolio assessment. They are crucial in ensuring each bank’s long-term solvency and the stability of the banking sector. Thus, it is important to investigate their determinants, the macroeconomic and the bank-specific ones, for the case of a landlocked country under transition, a new NATO member country, seeking access to EU. The studied period, including the Global Financial Crisis (2007–2009) and the European Sovereign Debt Crisis (2010–2012), the Pandemic and the Russian Invasion of Ukraine, makes our results valuable to the policymakers and stakeholders, given that we understand, measure and forecast their responsiveness to specific factors.
Petros Golitsis, Khurshid Khudoykulov & Savica Palanov (2022) Determinants of non-performing loans in North Macedonia, Cogent Business & Management, 9:1, DOI: 10.1080/23311975.2022.2140488