An Investigation into the Influence of Non-Performing Loans on Lending and Capital: A Case Study of Commercial Banks in Kosovo

Abstract

This research is part of a series of studies that evaluate the performance of commercial banks in Kosovo, including the composition of non-performing loans within the Banking System of the Republic of Kosovo. The primary objective of this paper is to analyze the impact of nonperforming loans on the banking sector in Kosovo. The study was conducted by examining financial indicators of commercial banks, such as first-tier capital, second-tier capital, total capital, and total loans. These indicators were obtained from the Central Bank of the Republic of Kosovo, and the analysis covers a 10-year period from 2012 to 2022. Consequently, several inquiries arise: Do nonperforming loans have a detrimental effect on other financial indicators in Kosovo's banking system? What is the influence of nonperforming loans on total capital? How do nonperforming loans affect lending activities? To address these questions, we conducted a comprehensive review of empirical studies employing the SPSS model to measure the impact of bad loans. The research encompasses the period from 2012 to 2022. Upon reviewing relevant international literature, it becomes evident that numerous studies establish a direct relationship between financial indicators and non-performing loans (Çollaku and Aliu, 2021). In contrast, our study focuses on examining the impact and interdependence of non-performing loans on those financial indicators.