Predicting LCR with GDP, NPLs and ROE

Abstract

This paper aims to examine drivers of Liquidity coverage ratio (LCR) in Croatia. The intention of this study is to examine and analyse the effect of Return on Equity (ROE), Non-performing Loans (NPL), and Gross domestic product (GDP) on Liquidity Coverage Ratio (LCR) in the Croatian banking sector. The population of this study is Croatian banking sector from q3 2016 to q3 2021. Empirical results suggested real GDP growth rates and NPL levels as LCR drivers in Croatia while effects from ROE were not empirically supported. The results of this study indicate NPLs and GDP simultaneously affect LCR. Consequently, the study has implications for banks in Croatia.