Latest financial crisis resulted in non-performing loans growth what causes a lot of problems to financial stability of banking systems all around world. Aim of this paper was to examine the impulse response function of financial stability and non-performing loans in Bosnia and Herzegovina banking sector. For that purpose, non-performing loans were defined as dependent and financial stability was an independent variable. Vector autoregression analysis was employed in order to explore how the Bosnia and Herzegovina banking sector financial stability responds to the impulse of changes in non-performing loans. Data for financial stability and non-performing loans for the period 2000-2017 were used. Main goal of this research is analysis of financial stability response on changes in non-performing loans. Therefore, the purpose of this paper is modelling relations between non-performing loans and financial stability. The study showed that financial stability of Bosnia and Herzegovina banking sector negatively reacts to changes in non-performing loans. Regression model showed that increase in non-performing loans leads to deterioration in financial stability of the banking sector. Results indicate long-term and short-term connection between non-performing loans and financial stability. Furthermore, it was disclosed that changes in financial stability have been caused by changes in non-performing loans. These results indicate the importance of non-performing loans monitoring as one of the main sources of systematic risk which could threaten banking sector financial stability.
Bookstaber R, Cetina J, Feldberg G, Flood M, Glasserman P. Stress tests to promote financial stability: Assessing progress and looking to the future. Journal of Risk Management in Financial Institutions. 2014;16–25.
2.
Bock R, Demyanets A. Bank asset quality in emerging markets: determinants and spillovers. 2012;
3.
Efthyvoulou G, Yildirim C. Market power in CEE banking sectors and impact of the global financial crisis. Journal of Banking & Finance. 2014;11–27.
4.
Engle R, Granger C. Co-integration and Error Correction: Representation, Estimation, and Testing. Econometrica. 1987;76–251.
5.
Fabris N. Aktuelna pitanja crnogorske ekonomije. 2010.
6.
Fabris N. Aktuelna pitanja crnogorske ekonomije. 2010.
7.
Fawad A, Taqadus B. Explanatory Power of Macroeconomic Varibales as Determinants of Non-performing loans: Evidence from Pakistan. World Applied Science Journal. 2013;243–55.
8.
Horvatova E. Analysis of the problem of pro-cyclicaty in the eurozone and procyclicality solutions in Basel III. European financial system. 2013;
9.
Islamoglu M. The Effect of Macroeconomic Variables on Non-performing Loan Ratio of Publicy Traded Banks in Turkey. Wseas transactions on business and economics. 2015;10–20.
10.
Karanovic G, Karanovic B. Developing An Agregate Index For Measuring Financial Stability In The Balkans. Procedia Economics and Finance. 2015;3–17.
11.
Kemal K, Žunić E. Causes and consequences of NPLs in Bosnia and Herzegovina banking sector. Journal of Economic and Social Studies. 2015;127–44.
12.
Kjosevski J, Petkovski M. Non-performing loans in Baltic States: determinants and macroeconomic effects. Baltic Journal of Economics. 2016;25–44.
13.
Kozarić K, Fabris N. Monetarno - kreditna politika. 2012.
14.
Kozarić K, Žunić E. Causes and consequences of NPLs in Bosnia and Herzegovina banking sector. Journal of Economic and Social Studies. 2015;127–44.
15.
Ozili PK. Non-performing loans and financial development: new evidence. Journal of Risk Finance. 2019;59–81.
16.
Shehzad CT, Haan JD, Scholthes B. The impact of bank ownership concentration on impaired loans and capital adequacy. Journal of Banking and Finance. 2010;26–38.
17.
Šverko I, Prga I, Vrdoljak T. Non-performing loans and loans loss provisions: the case of Croatia. In: Economic developement perspectives of SEE Region in Global Recession Context. 2010. p. 50–62.
18.
Taylor A. External imbalances and financial crises. 2013;
19.
Xiaoqing F, Yongija L, Molyneux P. Bank competition and financial stability in Asia Pacific. Journal of Banking & Finance. 2014;64–77.
20.
Yohanee TC. School of Management.
21.
Živko I, Kandžija T. Impact of financial crisis on banking sector stability in Republic Croatia. Poslovna izvrsnost. 2013;
22.
Hercegovine C. Izvještaj o finansijskoj stabilnosti. 2018.
Citation
Copyright
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
The statements, opinions and data contained in the journal are solely those of the individual authors and contributors and not of the publisher and the editor(s). We stay neutral with regard to jurisdictional claims in published maps and institutional affiliations.
