NON-PERFORMING LOANS AND PROFITABILITY INDICATORS: THE CASE OF THE REPUBLIC OF MACEDONIA

In the traditional banking model, loans play a dominant role in banks’ operations. Loan portfolio quality is the main generator of banks’ results. In the periods of best results, as well as in times of worst performance of banks’ operations, the reasons for success or failure have been attributable to the changes in the loan portfolio quality. The basic indicator of credit portfolio quality is the share of non-performing loans to the total credit portfolio. The consequences of an increased amount of non-performing loans may not only reduce the financial results, but also reduce the capital and increase the risk profile of the bank. This paper investigates the influence of the non-performing loans ratio on profitability indicators in the banking system of the Republic of Macedonia for the period 2007- 2015. This analysis presents the correlation and regression between the nonperforming loan ratio of non-financial entities and profitability indicators: rate of return on assets and rate of return on equity, as well as the spread between interest rates on loans and deposits in denars. The results of such correlation show a moderately high negative correlation between the non-performing loans ratio and rates of return on equity and return on assets. Regression analysis shows that increasing the nonperforming loans ratio has influence by reducing bank profitability. Also, the statistical analysis confirms that the profitability position of the real sector is one of the most important factors affecting the movement and level of non-performing loans

THE IMPACT OF THE NON-PERFORMING LOANS TO BANKS’PERFORMANCE: THE CASE OF THE REPUBLIC OF MACEDONIA

The paper investigates the relationship between non-performing loans and the basic indicators for banks’performance. The analysis was conducted among the banking sector in the Republic of Macedonia for the period 2007-2015. The share of non-performing loans in total loans is one of the basic indicators for the quality of the credit portfolio in banks. The analysis of the movement and the level of non-performing loans is of great importance for identifying possible problems in bank risk management as a whole. With the application of correlation and regression method, we confirmed the findings of the consequences of non-performing loans on the performance of banks. The results indicate that a large share of non-performing loans to total loans leads to deterioration in the financial and liquidity position. There is a weak negative correlation between the rate of capital adequacy and non-performing loans ratio and that requires further research

The Impact of Ownership of Banks on their Performance: Case Study of Sample of Balkan Countires

The purpose of this paper is to investigate the relationship between bank ownership (foreign vs. domestic) and bank profitability in three South-Eastern European countries, Bulgaria, Macedonia and Serbia using individual bank data. There are a lot empirical evidences that banks with foreign ownership have better performance. This is due on the better corporate governance in those banks that is manifest with better risk management system. In micromanagement, better risk management system is depicted in better granting criteria, more strict and unbiased process, better monitoring system and more proactive strategy. This leads to better quality of the credit portfolio and better performance indicators. This paper will explore this hypothesis on basis of a sample of 24 banks from the three sample countries through a data series of ROE for the period 2008-2016