Determinants of the credit risk in developing countries: a case of Kosovo banking sector

Abstract

The determinant of the credit risk of banks in a developing country have limited data to analyze and limited participation in literature. Determinants of credit risk are very important in order to define the non-performing loans (NPL) in Kosovo banking systems. Even though banking system in Kosovo is the newest in region, it is comparable with banking systems to all places in regions (Albania, Serbia, Montenegro, Macedonia, Bosnia and Herzegovina, etc.).The main purpose of this paper is to classify some factors that influence credit risk in commercial banks in Kosovo. The research includes seven commercial banks for the period 2006–2015. Data analysis and interpretation are processed with Statistical Program for Social Sciences SPSS v.19.0.The effect of variations in the determinants of credit risk exposure is based on using a multivariate panel regression model. Our empirical results suggest that a significant relationship exists between credit risk and the following variables: Profitability (ROE and ROA), Inefficiency (IE), Loans to deposit ratio (LDR), Credit growth (CG) and Deposit rate (DR), while variables of Solvency (SR) and Credit rate (CR) are not statistically significant in terms of credit risk.