Open AccessCapital Adequacy In The Albanian Banking System; An Econometrical Analysis With A Focus On Credit Risk
Author(s) -
Kledian Kodra,
Drini Salko
Publication year - 2016
Publication title -
european scientific journal
Language(s) - English
Resource type - Journals
eISSN - 1857-7881
pISSN - 1857-7431
DOI - 10.19044/esj.2016.v12n1p271
Subject(s) - market liquidity , profitability index , capital adequacy ratio , non performing loan , financial system , business , credit risk , capital requirement , capital (architecture) , monetary economics , economics , finance , microeconomics , loan , profit (economics) , archaeology , incentive , history
This paper examines the relationship between regulatory capital and credit risk within the Albanian banking sector. We estimate an equation which tries to capture the relationship among regulatory capital, nonperforming loans, profitability, total assets, liquidity and the level of growth in the GDP. The data is grouped and the analysis is performed in accordance with three banking groups. The grouping of the banks is in accordance with their size in the system and reflects the grouping used by the central bank for regulatory purposes. The model developed can be used to forecast required levels of CAR and it suggests that in the Albanian banking system, as well as for each bank group separately, the relationship between CAR and NPL is negative, the relationship between CAR and assets is negative for an unchanged level of regulatory capital, the relationship between CAR and profitability is positive, whereas the relationship between CAR and liquidity is negative. The effects of the change in the level of NPL on CAR are of a longer term nature, whereas the effect of the change in the level of assets on CAR is more of a shorter term nature.