Determinants of Bank Credit Risk: Empirical Evidence for Commercial Banks from Republic of North Macedonia

  • Vesna Svrtinov
  • Elenica Sofijanova
  • Krume Nikolovski
  • Emilija Miteva


Credit risk is most simply defined as the potential that a bank borrower or
counterparty will fail to meet its obligations in accordance with agreed terms. The goal
of credit risk management is to maximise a bank's risk-adjusted rate of return by
maintaining credit risk exposure within acceptable parameters. The effective
management of credit risk is a critical component of a comprehensive approach to
risk management and essential to the long-term success of any banking
organisation.We have to underline that the revenue of banks comes primarily from
interest on loans and accordingly loans form a major source of credit risk.This study
aimed to investigate the credit risk determinants in Republic of North Macedonia
banking sector. We include bank-specific variables in the analysis, (bank profitability,
bank liquidity, capital ratio , bank size, growth rate in loans) using a balanced panel
dataset of seven commercial banks, which have published revised financial statement
on the web site of Electronic reporting system from listed companies on Macedonian
stock exchange, over the period 2013-2018. To provide complete analysis, this study
employed three different estimation methods: pooled OLS, Fixed effect and GLS
Random effect models.The findings revealed that, capital ratio, growth rate in loans,
bank size and bank liquidity, have significant correlation with credit risk. Capital ratio,
growth rate in loans, and bank liquidity have inverse or negative correlation with
credit risk, which means that if this variables increase the credit risk will decrease.
Bank size has positive correlation with credit risk, showing that the increase of the
bank size will increase credit risk. Our research doesn’t find significant correlation
between credit risk and bank profitability variable. This fact shows that the bank
profitability in the case of banking sector in the Republic of North Macedonia has no
statistical significance for the credit risk.


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Banking and Finance