engleski

Macroeconomic Shocks Influence On NPL Level In Small Open Economy: Example Of Croatia

The main research question of the paper is the effect of the way domestic banks in Croatia do business and therefore influence the economy, with specific emphasis on the consequences of NPL portion within loan portfolio. Since 2003 the main fraction of loan portfolio for domestic banks belongs to retail segment, which are mainly private individuals rather than businesses. As a result of banks focusing on private individuals, in the last ten years there was a significantly increase in personal consumption. Since there is a lack of competitiveness of domestic economy, consumption has focused toward imported goods. Consequently high level of imports may result negatively to the GDP levels as well as trade balance. Are domestic banks myopic? The main reason for bank’s behavior could be found within risk management regulation standard based on Basel ll which advocates bank’s obligation to assess risk incorporated in the loans they lend. Considering credit risk associated with private individuals and credit risk for corporate clients significant difference could be found in favor of the previous. Therefore banks have a tendency to be inclined toward private individuals lending. As more and more income is being spent on imports there is less added value creation for domestic economy. This may reduce available job opportunities, increase level of unemployment and create inability for private individuals to repay of their debts. It is conclusive that banks need to redefine their long-term policy and for their own sake direct more funds toward corporate clients.

macroeconomic shocks ; banks ; lending ; credit expansion

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