Relationship Between Economic Factors and Non-Performing Loans- the Case of Albania

Abstract

The financial system in Albania is dominated by the banking system and therefore its performance is of great importance for the financial and economic stability of the country. The share of banking sector assets at the end of 2016 reached 95.8 percent of Gross Domestic Product (GDP). On the other hand, the banking system does not operate isolated and it is consequently linked to the country's economic cycle, at the same timed affected by economic developments. Credit risk is the biggest risk to which the banking system is exposed because the credit occupies the main weight in the banking system assets. In this paper there is a description of lending activity and credit risks in Albania. The analysis focuses on problem loans and analyzes their performance over the years. This paper analyzes the links between non-performing loans and some economic factors through the statistical program, using the simple and multi-linear regression method. As a function of our working regarding non-performing loans, they are presented as a dependent variable and as independent variables, some economic indicators are thought to have an impact on the level of non-performing loans such as GDP growth rate, unemployment, inflation and rate of interest on the loan.