Credit growth and non-performing loans: evidence from Turkey and some Balkan countries

Abstract

In this paper, endogenous and exogenous factors that affect the credit growth rate of some Western Balkan countries (Bosnia and Herzegovina, Croatia and Serbia) and the credit policy in Turkey will be investigated through a multiple regression analysis. The credit growth rate will be used as the dependent variable while the rate of the non-performing loans along with the growth rate of the deposit, the return of equity and the real growth rate of the gross domestic product will be used as independent variables. In this paper the STATA 13.0 software package will be used. This data analysis will include a quarterly basis data for the period: 2007q1 – 2017q2 due to its higher significance. The result of the regression analysis showed that there is a reverse relationship between the rate of the non-performing loans and the credit growth rate for all the observed countries. The high share of problematic loans in total loans relatively reflects in a negative way the overall tendency of the banks towards taking risks and credit growth. It reduces the profitability of the banking sector and increases the systemic risk as well. The basic results of the regression analysis also showed a positive relationship between economic growth and the credit growth of banks. On the one hand, the economic growth of the region insufficiently follows the credit growth due to the stagnation of the real sector, and the recovery of the economy on the other hand. Similarly, there is a positive relationship between the growth rate of the deposits and credit growth, since the deposits sources are the basis for performing credit nomination. Except for Croatia where a negative correlation was recorded, there is a positive relationship in terms of the return on equity and credit growth.

Keywords

• economic growth
• credit growth
• non-performing loans