Bad loans and their influence in the Albanian Economy

Abstract

The Albanian Banking System has gone through significant changes in its development performance. This progress presents numerous difficulties and challenges which help to further consolidate the system. Currently in the Albanian banking sector there are 16 operating commercial banks, five banks have been in operation since 1997.This tripling of the number of banks in operation shows the expansion this sector has had over the years, the development of which is associated with numerous problems and challenges.One of the problems facing the banking system is bad loans, whose treatment has taken a great importance in recent years, especially in the period after the global financial crisis. Albania is also affected by the financial crises, so this study has special importance for its banking system. The purpose of this paper is to become acquainted in detail with the problem of bad loans, the factors that cause it and the economical consequences.Factors affecting the determination of bad loans come not only from macroeconomic indicators, which are seen as exogenous factors that include the banking industry as well. On the other hand, the distinguishing features of the banking sector and the selection policies of each bank in response to their efforts to maximize the efficiency and improvements in risk management are expected to show a great influence on the development of bad loans. Throughout this paper we will take a good look in the banking system, in its lending activity in recent years and the performance of bad loans in Albania from 2003-2012. Then, we will provide a comparative study with Eastern European countries associated with the phenomenon of bad loans.Based on the data collected, we will ponder an econometric study, which expresses the impact of credit approvals and bad credit in the Albanian economy. We will finally draw conclusions and to give recommendations.

DOI: 10.5901/mjss.2014.v5n19p426