Non-Performing Loans’ Forecast – Evidence From Romania
The post financial crisis period, due to a complex mix of distressed financial and economic fundamentals, has left European banks’ balance sheets in a vulnerable position. The impairment of loans represents a persistent problem, which still exhibits a slow pace of recovery in several EU countries. According to the level recorded by nonperforming-loans ratio (between 10 – 20%), Romania constantly places itself in a group composed also by Bulgaria, Croatia, Hungary, Ireland, Italy, and Portugal. These above EU-average ratios are exceeded only by those in Greece and Cyprus, with ratios of over 40%. The paper aims at developing a univariate model for predicting the future evolution of the NPLs in the Romanian banking system. The results show that lagged values of NPLs exhibit explanatory power on the future levels of NPLs, but for an increased accuracy they have to be complemented by other macroeconomic and bank-specific variables.
Index terms - Non-performing loans, ARMA model, forecast.