Prague Economic Papers 2008, 17(2):99-117 | DOI: 10.18267/j.pep.323

Cyclicality of the banking sector performance and macro environment in the Czech republic, Slovakia and Slovenia

Mejra Festić1, Dejan Romih2
1 University of Maribor; Economic Institute of the Law School, Ljubljana (mejra.festic@uni-mb.si; mejra.festic@eipf.si).
2 Economic Institute of the Law School, Ljubljana; University of Maribor (dejan.romih@uni-mb.si, dejan.romih@hse.si).

An exposure to macroeconomic risk factors across banks is a source of systemic risk that influences the banking sector performance. In this paper, we present some evidence on macroeconomic variables affecting the non-performing loans (NPL) ratio in the Czech Republic, Slovakia and Slovenia.

The GDP growth might have improved borrowers' ability to serve their bank loans in Slovenia, meanwhile the accelerating NPL ratio dynamics has failed to support the hypothesis that the GDP growth fosters an improvement in the NPL ratio in the case of Slovakia. Meanwhile deceleration in the NPL ratio on export impulses has supported a procyclical theory in the Czech Republic, Slovakia and Slovenia. The response of non-performing loans to inflation supports the hypothesis about the lowering inflation that decelerates the NPL ratio. Savings have accelerated the NPL ratio in the case of Slovakia and Slovenia. The banking sector performance is possibly reflecting a favourable assessment of the economic growth and an increasing indebtedness of private sector could become causes of concern if the macroeconomic environment should develop less favourably.

Keywords: economic growth, non-performing loans, macro impulses, cyclicality
JEL classification: F47, G15, G21

Published: January 1, 2008  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Festić, M., & Romih, D. (2008). Cyclicality of the banking sector performance and macro environment in the Czech republic, Slovakia and Slovenia. Prague Economic Papers17(2), 99-117. doi: 10.18267/j.pep.323
Download citation

References

  1. Arpa, M., Giulini, I., Ittner, A., Pauer, F. (2001), "The Influence of Macroeconomic Developments on Austrian Banks: Implications for Banking Supervision". Basel, Bank for International Settlements, BIS Paper No. 1, http://www.bis.org/publ/bispap01c.pdf.
  2. Babouček, I., Jančar, M. (2005), "A VAR Analysis of the Effects to Macroeconomic Shocks to the Quality of the Aggregate Loan Portfolio of the Czech Banking Sector". Prague, Czech National Bank, Working Paper Series 1.
  3. Bárta, V., Singer, M. (2006), "The Banking Sector after 15 Years of Restructuring: Czech Experience and Lessons". Basel, BIS Paper No. 28, http://www.bis.org/publ/bppdf/bispap28k.pdf.
  4. Berglöf, E., Roland, G. (1995), "Bank Restructuring and Soft Budget Constraints in Financial Transition". CEPR, Discussion Paper No. 1250, http://ideas.repec.org/p/cpr/ceprdp/1250.html.
  5. Blaschke, W., Jones, M. (2001), "Stress Testing of Financial Systems: An Overview of Issues, Methodologies and FSAP Experiences". Washington, DC, IMF Working Paper No. 01/88), http://www.imf.org/external/pubs/ft/wp/2001/wp0188.pdf. Go to original source...
  6. Borio, C., Lowe, P. (2002), "Asset Prices, Financial and Monetary Stability: Exploring the Nexus". Bank for International Settlements, BIS Working Papers No. 114, July, pp. 3-45. Go to original source...
  7. Borio, C., Furfine, C., Lowe, P. (2001), "Procyclicality of the Financial System and Financial Stability: Issues and Policy Options". In Marrying the Macro and Micro-Prudential Dimension of Financial Stability. Bank for International Settlements, BIS Paper No. 1, March, pp. 24-31, http.//www.bis.org.
  8. Box, G. E. P., Jenkins, G. M. (1976), Time Series Analysis. Forecasting and Control. San Francisco : Holden-Day.
  9. Brandmeier, M. (2006), "Reasons for Real Appreciation in Central Europe". Centre for Globalisation and Europeanization of the Economy, Discussion Paper No. 55, May, pp. 396-400, http://www.cege.wiso.uni-goettingen.de/Dokumente/55_Brandmeier.pdf.
  10. Breuss, F., Fink, G., Haiss, P. (2004), "How Well Prepared Are the New Member States for the European Monetary Union?" Europe Institute at the Vienna University of Economics and Business Administration and Bank Austria Creditanstalt Paper for the Special Issue Journal of Policy Modeling : Salvatore, D. (ed.), "Enlargement of the European Monetary Union", http://www.wifo.ac.at/Fritz.Breuss/Breuss_Fink_Haiss_JPM2004.PDF. Go to original source...
  11. Brzoza-Brzezina, M. (2005), "Lending Booms in the New Member States, Will Euro Adoption Matter?" ECB Working Paper No. 543, December, http://www.ecb.int/pub/pdf/scpwps/ecbwp543.pdf. Go to original source...
  12. Calvo, G. A., Mendoza, E. (2000), "Contagion, Globalization and the Volatility of Capital Flows", in Edwards, S., ed., Capital Flows and the Emerging Economies. Chicago: University of Chicago Press, pp. 12-43.
  13. Canova, F. (2003), Methods for Applied Research 6: VAR Models. Rome and London: Universitat Pompeu Fabra, London Business School and CEPR. http://www.ifk-cfs.de/papers/Canova_ Chapter 6.pdf).
  14. Dickey, D. A., Fuller, W. A. (1979), "Distribution of the Estimators for Autoregressive Time Series with Unit Root". Journal of American Statistical Association 74, pp. 427-431. Go to original source...
  15. Engle, R. F., Granger, C. W. J. (1978), "Co-Integration and Error Correction Representation Estimation and Testing". Econometrica, 46 (2), pp. 251-276. Go to original source...
  16. ECB (2006), "Acceding Economies Macro Environment and Banking Sector". European Central Bank Occasional Paper No. 48, July, pp. 11-31, http://www.ecb.int/ecbop48[1].pdf.
  17. Edwards, S. (2001), Exchange Rate Regime, Capital Flows and Crisis Prevention. Los Angeles: NBER and University of California, http://www.anderson.ucla.edu/faculty/sebastian.edwards/woodstock2.pdf. Go to original source...
  18. Eichengreen, B., Mussa, M., Milesi-Ferretti, M. G., Detragiace, E. (1999), "Liberalizing Capital Movements: Some Analytical Issues". Washington, DC, IMF Paper No. 17, http://www.imf.org/external/pubs/ft/issues/issues17/index.htm. Go to original source...
  19. English, W. (1996), "Inflation and Financial Sector Size". Federal Reserve Board, Finance and Economics, Discussion Paper Series, No. 16, pp. 5-49, http://www.federalreserve.gov/PUBS/feds/1996/199616/199616pap.pdf. Go to original source...
  20. EU Monitor (2006), Deutsche Bank Research, May, pp. 1-11, http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000198571.pdf.
  21. European Commission (2006), Convergence Report. Brussels: European Commission, Directorate General for Economic and Financial Affairs, Spring Forecast, http://europa.eu.int/scadplus/leg/en/lvb/l25057.htm.
  22. Festiae, M. (2007), "Makro dejavniki rezultatov bančnega sektorja (Macro Determinants of the Banking Sector Results in Slovenia and Slovakia)". Bančni vestnik, 56, September, pp. 24-30.
  23. Golin, J. (2005), The Bank Credit Analysis Handbook, a Guide for Analysts, Bankers and Investors. London: Wiley Finance.
  24. Greene, W. H. (2003), Econometric Analysis, 5th ed. New Jersey: New York University, Prentice Hall, pp. 145-152.
  25. Havlik, P. (2003), "EU Enlargement: Implications for Growth and Competitiveness". The Vienna Institute for International Economic Studies, a study commissioned by the Austrian Federal Ministry for Economy and Labour. http://www.bmwa.gv.at/NR/rdonlyres/A21B2A97-173C-4CC2-93B4F3293339B56A/8871/WIIWStudie2003.pdf.
  26. International Monetary Fund (2006), Global Financial Stability Report - Statistical Appendix. Washington, DC: IMF, http://www.imf.org/external/ns/search.aspx?NewQuery=RoA&Sort=Score&Filter_Val=N&page=2&col=SITENG&collection=&year=&rcount=50&swr=0&LastQuery=&Lan=eng&adv=0.
  27. Kaminsky, G., Reinhart, C. M. (1999), "The Twin Crises: the Causes of Banking and Balance of Payments Problems". American Economic Review, 89, pp. 473-500. Go to original source...
  28. Kavkler, A., Böhm, B. (2006), "Using canonical correlations in testing for common nonlinear com-ponents". Methodological working paper (printed edition), 3 (1), pp.75-88. http://mrvar.fdv.uni-lj.si/pub/mz/mz3.1/kavkler.pdf[downloaded: November 19, 2007]. Go to original source...
  29. Lardy, N. R. (1999), "When Will China's Financial System Meet China's Needs?" Stanford, CA, Stanford University, Center for Research on Economic Development and Policy Reform, Paper prepared for Conference on Policy Reform in China, November, http://www.brookings.org/views/papers/lardy/19991118.htm.
  30. Pesaran, H. H., Shin, Y. (1998), "Generalised Impulse Response Analysis in Linear Multivariate Models". Economics Letters, 58, pp. 17-29. Go to original source...
  31. Quagliariello, M. (2003), Macroeconomics Indicators Useful in Predicting Bank Loan Quality? Evidence from Italy. Rome: Bank of Italy, http://www-users.york.ac.uk/~mq102/mpa_en.pdf.
  32. Rajan, R. G. (2005), "Has Financial Development Made the World Riskier?" Paper presented at the Jackson Hole Conference, August, http://neweconomist.blogs.com/new_economist/2005/papers_from_the-html. Go to original source...
  33. Shu, Chan (2002), "The Impact of Macroeconomic Environment on the Asset Quality of Hong Kong's Banking Sector". Hong Kong Monetary Authority Research Memorandum, December, http://www.info.gov.hk/hkma/eng/research/index.htm.
  34. Sims, Ch. A., Zha, Tao (1999), "Error Band for Impulse Responses". Econometrica, 67 (5), pp. 1113-1156, http://ideas.repec.org/a/ecm/emetrp/v67y1999i5p1113-1156.html. Go to original source...
  35. National Bank of Slovakia (2004), "Analysis of the Slovak Banking Sector 2004", http://www.nbs.sk/DFT/PUBLIK/ANALYZA/2004/2004A.PDF.
  36. Thursby, J. G. (1982), "Misspecification, Heteroscedasticity, and the Chow and Goldfeld-Quandt Tests". The Review of Economics and Statistics, 64 (2), pp. 314-321. Go to original source...
  37. Wall, M. E., Rechtsteiner, A., Rocha, L. M. Luis (2003), "Singular Value Decomposition and Principal Component Analysis", in Practical Approach to Microarray Data Analysis. Norwell, MA: Kluwer, pp. 22-24, http://public.lanl.gov/mewall/kluwer2002.html.

This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.