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Purpose -The purpose of this article is to investigate empirically the influence of macroeconomic and real estate market variables on the level of non-performing loans. A secondary goal is to analyse the effect of constant loan portfolio growth on the level of non-performing loans.Design/methodology/approach -The Vector Error Correction Model is applied.Findings -The research indicates that the most significant reason for the growth of non-performing loans was caused by the changes in the real GDP. The increasing influence of rapid loan portfolio growth proves the assumption that banks' credit risk management policies underestimated the changes in the macroeconomic variables during the analysed periods. Rapid growth of the real estate market played an important role, but it was not as crucial as it has been previously assumed.Practical implications -Developed an innovative approach of credit risk analysis that can be used for forecasting banks' financing activity.Originality/value -There has been developed and tested empirically an innovative approach of credit risk analysis based on the combined influence of different credit risk determinants.

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Estonia, Comparative advantage, Vertical/horizontal intra-industry trade, F15, O57,

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