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Volume 59, Issue 6

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Financial Stability in the Baltics

Festić, Mejra; Repina, Sebastijan

Year: 2009   Volume: 59   Issue: 6   Pages: 554-576

Abstract: We test the hypothesis of procyclicality of banking sector results in the Baltic economies. Our estimates suggest that a slowdown in economic activity is likely to accelerate the growth of the nonperforming loan (NPL) ratio in the Baltics. They also support the hypothesis that a rapid growth of credit harms loan performance, most likely due to soft-loan constraints and macroeconomic overheating. Higher concentration in banking market coincides with relatively higher nonperforming loans. Compliance with the Basel core principles improves the quality of the loan portfolio.

JEL classification: F47, G15, G21

Keywords: cyclicality, non-performing loans, systemic risk, asset quality

RePEc: http://ideas.repec.org/a/fau/fauart/v59y2009i6p554-576.html

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