DETERMINANTS OF NONPERFORMING LOANS IN ROMANIA AND CENTRAL, EASTERN AND SOUTHEASTERN EUROPE

Abstract

This paper investigates the macroeconomic and bank-specific determinants of nonperforming loans in Romania and selected Central and Eastern European countries. Using a combination of econometric approaches, the study employs fixed-effects panel regressions for 18 Romanian banks over the period 2007Q4 – 2023Q4, a Bayesian Vector Autoregression model for Romania, and a Panel VAR framework for six Central, Eastern and South-Eastern European (CESEE) countries over the period 2008Q4 – 2024Q4. The results indicate that bank profitability, capitalisation, and operational efficiency play a significant role in shaping credit risk at the bank level. At the macroeconomic level, economic growth and exchange rate appreciation reduce NPLs, while unemployment, interest rates, and inflation increase default risk. Impulse response functions reveal strong persistence in NPL dynamics and highlight unemployment as the most robust and influential determinant of credit risk across all models. The findings suggest that credit risk is driven by a complex interaction between macroeconomic conditions and bank-specific characteristics, with labour market developments representing the main transmission channel between the real economy and financial stability.

JEL Classification

E44, E51, G21, G32

Keywords

credit risk, banks, Bayesian VAR, panel VAR, panel regression

How to cite

Cosmin Laurențiu Costache (2026). DETERMINANTS OF NONPERFORMING LOANS IN ROMANIA AND CENTRAL, EASTERN AND SOUTHEASTERN EUROPE. Financial Studies, 30(1), 26-49. DOI: 10.65672/fs.2026.1.2.

RePEc record

Handle: RePEc:vls:finstu:v:30:y:2026:i:1:p:26-49