The Impact of Global Financial Crisis on the level of non-performing loans in commercial banks in Kosovo

Abstract

This section presents a review of the literature on performance of commercial banks in different countries which are taken as examples for analyzing the performance of commercial banks in the Republic of Kosovo. There is an increasing amount of research focusing on the global financial crisis of 2008 and the bankruptcy of many well-known global financial institutions.1 Measuring banks’ performance in general and commercial banks’ performance in particular is the topic of many well-established researchers. Most of the published research is based on empirical evidence. (See Oral, Yolalan, 1990; Bonin et al., 2005). As part of the CAMELS2 system, bank regulators apply financial ratios to evaluate the performance of banks. The empirical evidence concerning the application of financial ratios to evaluate the performance of banks includes research authored by Beaver (1966), Altman (1986) and Maishanu (2004). Reviewing the literature we can conclude that there are two general approaches for measuring bank performance. The first approach is based on accounting data, respectively on main application of banks’ financial ratios while the second approach is based on econometric techniques. Kiyota (2009) undertook a two-phase research to investigate the effectiveness of profit-flow and cost of commercial banks from 29 African countries during the period 2000–2007. This research has applied a SFA approach to evaluate the effectiveness of profits and costs, as well as financial ratios and Tobit regression, in order to offer crosscountry evidence on the performance and efficiency of commercial banks in Africa. The findings of this research suggest that foreign banks tend to have better performance compared to local banks, in terms of performance efficiency and also cost efficiency (Kiyota, 2009). Kirkpatrick (2007) investigated the performance of 89 commercial banks in African countries during the period 1992–1999 and testified that banks on average are 67% efficient with regard to profit-flow and 80% efficient in terms of costs (Kirkpatrick, Murinde, Tefula, 2007). Another interesting study on the performance of banks was conducted by Ncube (2009), who has applied a border stochastic model to analyze the efficiency of costs and profit-flow of the 4 major banks and four smaller banks in South Africa. The results of this research indicated that South African banks have improved greatly in cost efficiency during 2005 and 2006, where banks with higher efficiency costs have been more profitable.