Kalterina Abazi Jusufi
1 Ministry of Finance in Republic of North Macedonia
kalterinaabazi@hotmail.com
Abstract
In any economy, the financial sector plays a fundamental role in achieving economic growth and thus achieving sustainable economic development. Therefore, interest in the financial sector is considered important for every country. In addition to the importance of this sector, the banking sector is also of great importance as one of the most important financial institutions.
A developed banking sector provides an incentive for the growth of the economy. However, in order to maintain financial stability and withstand adverse shocks, it is important to understand the factors that affect bank profitability. Therefore, the purpose of this study was to analyze the effect of internal and external factors on the profitability of banks in the North Macedonia and selected countries from Southeast Europe. This research will assess the impact of non-performing loans (NPL) on the banking system of the North Macedonia and selected SEE countries in the period from 1994-2020.
Using the econometric model with the Random effect (RME) method, we confirm that non-performing loans have a large and negative impact on the profitability of the banking system in North Macedonia and selected countries from Southeast Europe, in the period from 1994-2020. The findings of the study showed that both internal and external variables have a significant impact on the profitability of banks in North Macedonia and selected countries of Southeast Europe. This means that banks should be careful from the accumulation of non-performing loans, maintain bank capital according to the regulations of the Basel Committee and maintain the profitability of banks.
Keywords: Bank Profitability, Non-performing loans, Capital, ROA, Commercial Banks.
JEL Classification: G2, G21.