Kalterina Abazi Jusufi 1*, Adriatik Abazi 2
1 University St. Cyril and Methodius – Skopje, Republic of North Macedonia, Economic Faculty
2 State University of Tetova – Tetova, Republic of North Macedonia, Economic Faculty
*kalterinaabazi@hotmail.com
ABSTRACT
This study examined the impact of bad loans on banks profitability, because banks are the most important participants in the financial system, but also the most significant and largest financial institutions around the world, measured through their share in the total financial sector assets and for this, the purpose of this paper is to study impact of bank-specific and macroeconomic determinants on bank profitability in Republic of North Macedonia.
A strong financial system is very important for a country to flourish. The economic progress of a nation and development of banking is invariably interrelated. The banking sector is important financial service sector because channelizing funds for productive purpose.
The objective of this study is to examine the impact of bank-specific and major macroeconomic factors on the profitability of banking sector in Republic of North Macedonia by using the data over the time period 1994-2016. This study used unbalanced time series data with OLS methods, which were collected from World Bank and National bank in Republic of North Macedonia. This paper employs the Ordinary Least Square method to investigate also the effect of loans, economic growth and other determinants showed with the level of the profitability in Republic of North Macedonia, because the purpose of this study is to find out the causes of loans in Republic of North Macedonia. However, some of these loans usually fall into non- performing loans and adversely affect the performance of bank profitability.
The main goal of this paper is the impact of internal and external factors which can be classified also into bank- specific and macroeconomic factors on bank profitability in Republic of North Macedonia as one of the countries that is in transition.
The paper sets out to determine the main factors and their level of impact on profitability of banks in the Republic of North Macedonia and showed that the loans have negative impact on the bank profitability in the Republic of North Macedonia, but also results showed the individual effects on profitability where in some variables coefficients are statistically significant. Moreover, results showed a positive but insignificant impact of the macroeconomic determinants such as growth.
Keywords: Financial system; Banking profitability; Non-performing loans; OLS; Republic of North Macedonia, SOCIAL SCIENCES
Introduction
A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets. Banks may also provide financial services, such as wealth management, currency exchange, and safe deposit boxes.
Banks play a vital role in economic growth, namely by diversifying the risk to their activity. Interest rate risk is one of the most important financial risks of each bank which the banks face. Each risk is in itself a direct or indirect negative impact on the profit, activity, or realization of the ultimate goal of the banks. The risk of a change in interest rates in the portfolios of banking activities is a risk of loss arising from unfavorable changes in interest rates, as seen by the bank.
The main goal of this paper is the impact of internal and external factors which can be classified also into bank-specific and macroeconomic factors on bank profitability in Republic of North Macedonia as one of the countries that is in transition. The main research question is: Is there a significant link between banking and macroeconomic factors, such as Non-performing loans and GDP growth on bank profitability in Republic of North Macedonia. What effect do macroeconomic factors have in the bank profitability in the banking sector in Republic of North Macedonia? The methodology of this research is based on the unbalanced time series data and OLS – Ordinary Least Square method. The data used are annual from 1994 to 2016 and the research is structured in this way. The section 2 is talking about the literature review and the used methodology, also in this section will describes the performance indicators being studied in the banking system in Republic of North Macedonia. Section 3 corresponds to the description of the data obtained in the study and will show the main results identified through the linear regression model. In section 4 will be the conclusions and recommendations and in the end of this research are references.
Volume 6.No.2(2022): April – (Social Sciences Session)
ISSN 2661-2666 (Online) International Scientific Journal Monte (ISJM)
ISSN 2661-264X (Print)
DOI : 10.33807/monte.20222572
DOI URL: https://doi.org/10.33807/monte.20222572
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This is an open access article under the CC BY-NC-ND license (creativecommons.org/licenses/by-nc-nd/4.0/)