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DOES THE CREDIT RISK IMPACT IN THE PROFITABILITY OF COMMERCIAL BANKS? ALBANIAN CASE

Dr. Arjeta HALLUNOVI
Keywords: Albania, Credit Risk, Return on Equity, Return on Assets, Non-Performing Loan Ratio, Capital Adequacy Ratio ,

Abstract

The purpose of the paper is to verify if there is a relationship between credit risk and profitability in the commercial banks in Albania. The study includes data from 12 commercial banks operating in the albanian banking system. To analyses the effect of credit risk in profitability in commercial banks are used the Non-Performing Loan ratio (NPL), Capital Adequacy Ratio (CAR), Return on Capital (ROE) and Return on Assets (ROA). To test the relationship between the four variables and profitability in the commercial banks are conducted statistical analyses. The study highlight that capital adequancy has a positive impact in the profitability, whereas credit risk has a negative relationship with the profitability of commercial banks in Albania. The results of the study are also consistent with similar studies by Ekinci and Poyraz[1] conducted in commercial banks in Turkey. The results of this paper are useful for commercial banks, academics, investors, government, local bodies and other stakeholders. This study makes an important contribution to the literature because it includes in the sample all commercial banks operating in the country. However, in future studies the study can be expanded to include more specific banking and macroeconomic variables to draw an even stronger comprehensive conclusion regarding the impact of credit risk on the performance of the albanian banking sector.

 

[1] Ekinci, R., and Poyraz, G. (2019). The Effect of Credit Risk on Financial Performance of Deposit Banks in Turkey. Procedia Computer Science, 158, 979-987. https://doi.org/10.1016/j.procs.2019.09.139