This paper analyses the impact of macroeconomic conditions on non-performing loans and financial stability in Bosnia and Herzegovina`s banking sector. The aim of this paper is to identify the effects of macroeconomic conditions on non-performing loans and the banking sector`s financial stability. To that end, data for the period 2006-2017 have been used. In order to detect the correlations between analysed variables, we performed the correlation analysis through Pearson coefficient of correlation. Results have confirmed the assumption about correlation between macroeconomic conditions, non-performing loans, and financial stability. Further, regression analysis was applied on data divided into two models: the impact of macroeconomic conditions on non-performing loans and the impact of macroeconomic conditions on the banking sector`s financial stability. Those two models point to the significance of macroeconomic environment for non-performing loans control and financial stability maintenance. Namely, the results have shown that improvement in macroeconomic conditions causes improvement in credit quality. Also, it was disclosed that better macroeconomic conditions ensure better conditions for maintenance of the banking sector`s financial stability.

The aim of this paper is to investigate the determinants of the movement of non-performing loans in the banking sector of Bosnia and Herzegovina, as well as the impact of the COVID-19 pandemic on them. For this purpose, secondary data from the banking sector of BiH were used, over which a multi-regression analysis was performed. The variables non-performing loans, GDP, loan loss provision, and dummy variable COVID-19 were used in the analysis. The results of the analysis showed a significant influence of all three mentioned variables. The existence of a significant positive link between non-performing loans and the state of the country's economy has been proven. In addition to the above, it has been proven that the variable COVID-19 has a delayed effect on NPLs, due to the current application of the moratorium on loans.

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.