INTERNAL AND EXTERNAL FACTORS OF NON-PERFORMING LOANS: THE EXAMPLE OF THE BANKING SECTOR IN BOSNIA AND HERZEGOVINA

Abstract

Non-performing loans are loans that do not generate income for banks and represent one of the most sensitive categories of a bank’s balance sheet. Their increase can affect both the liquidity and the solvency of banks. This paper investigates internal (specific) and external (macroeconomic) determinants of non-performing loans of the banking sector in Bosnia and Herzegovina for the period 2008: Q1 - 2020: Q4 including correlation and regression analysis. The results of the research showed that the following independent variables have the strongest impact on non-performing loans as a dependent variable: unemployment rate, provisions to non-performing loans, and real GDP growth rate. On the other hand, the independent variable return on equity had the weakest impact on non-performing loans.