An Analysis of the Determinants of Systemic Banking Crises in Southeast European Countries

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There is a long tradition in literature that banks can play a special role in the propagation of economic fluctuations. Theory suggests many channels through which financial system affects, and is affected by, economic growth. One of the most important empirical studies on this topic shows a strong positive relation between financial development and economic growth. However, the hypothesis that credit expansion is the main development instrument was challenged in the Asian crisis in the second half of the 1990s, and then even more strongly in the crisis after 2008 which was followed by almost a decade of economic stagnation. Development of the banking sector in Southeast European countries in the pre-crisis period was characterized by relatively high credit growth rates and, consequently, with an increase of the credit-to-GDP ratio. Some authors argue that the marginal effect of financial depth on economic growth becomes negative when credit to the private sector reaches about 100% of GDP. Taking into account relatively low level of credit-to-GDP ratio, we may assume that there is still enough room for finance to contribute to economic growth in Southeast European countries.

Section: Finance-growth Nexus In Southeast European Countriesmentioning

confidence: 93%

Essay on Finance-Growth Nexus

Asanović

2020

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“…The agents of stock markets are involved in researching the firms to disseminate information which in effect promotes better access to relevant information and capital allocation. Asanović (2018) found that businesses depending on each other find more benefits in countries with better developed financial markets, i.e. the resource allocation is better where the finance is strong.…”

Section: Literature Reviewmentioning

confidence: 99%

Dynamic Impact of Banking Performance on Financial Stability: Fresh Evidence from Southeastern Europe

Zeqiraj

Mrasori

İskenderoğlu

et al. 2021

This study addresses the issue of whether banking performance impacts financial stability in Southeastern European countries. To answer this question, the GMM approach has been applied in the analyses of the panel data over the period 2000–2015 for Southeastern Europe. The findings reveal the presence of significant positive long-run relationship between ROA, ROE, trade openness, and human capital, while government expenditures have negative impact on financial stability. Trade openness, human capital and government expenditures can keep the financial system stable as a whole. The Granger causality analysis discloses the main hypothesis where the banking system in this part of Europe accounts for more than 80% of the financial system. The study sheds light to the policymakers and research about the role of banking performance on financial stability for this region of Europe.

“…Koju et al (2018) shown the effects of remittance, public debts and interest spreads on NPL of each specific bank within the Nepalese banking system. Asanović (2018) performed an analysis of the determinants of banking crisis in Southeast European Countries and the results of the study shown that the banking system indicators have higher impact on probability of systemic banking crisis occurrence compared to macroeconomic indicators.…”

Section: Most Of Previous Studies Analyzed the Relation Between Macroeconomic Factors And Credit Risk Indicators Such As Non-performing Lmentioning

confidence: 99%

Macro Stress Testing Credit Risk: Case of Madagascar Banking Sector

Rakotonirainy

Razafindravonona

Rasolomanana

2020

This study proposes to assess the vulnerability of banking sector’s credit portfolio under macroeconomic shocks and to evaluate its impact on banking system capitalization. Our method uses the Global Vector Autoregressive (GVAR) Model to generate adverse macroeconomic scenarios. The GVAR model is combining by the satellite credit risk equation to find the non-performing loan under stress conditions. The advantage of using GVAR model is that on the one hand, it captures the transmission of global, external and domestic macroeconomic shocks on banks non-performing loans. On the other hand, this model considers the nonlinear pattern between business cycle and the bank credit risk indicator during the extreme events as highlighting by the macro stress test literature. The forecast of non-performing loan is then used to obtain stress projections for capital requirement for the banking system level. This article attempts to fill the lacks concerning the stress testing works about Madagascar which study is a recent framework, whose no study on dynamic macro stress testing was treated before. The Results outline the interaction of aggregate non-performing loan with macroeconomic evolution. The horizon of capital prediction shows that banking sector reacts most to a GDP shock. Also, Madagascar banking sector is quite resilient and remains sufficiently capitalized under all macroeconomic scenarios designed with a solvency ratio higher than the minimum regulatory CAR ratio.