Determinants of the Financial Stability of the Banking Sector of Bosnia and Herzegovina
Determinants of the Financial Stability of the Banking Sector of Bosnia and Herzegovina

Author(s): Almir Alihodžić, Emina Hodžić
Subject(s): Social Sciences
Published by: Udruženje ekonomista i menadžera Balkana
Keywords: Financial stability; Banking sector; Credit risk; Regression analysis
Summary/Abstract: This paper investigates the impact of explanatory variables that determine the financial stability of the banking sector in Bosnia and Herzegovina, and the possibility of controlling credit risk, which is a threat to the stability of the financial system for the period from 2009 to 2019 on a quarterly basis. Correlation and panel regression analysis are also applied in this paper. The selected independent (explanatory) variables are the growth rate of savings of the household sector, the growth rate of foreign direct investments, the growth rate of exports, the growth rate of total loans, the growth rate of non-performing loans, the growth rate of capital adequacy ratio, and unemployment growth rate. The GDP growth rate will be used as the dependent variable. The research results showed that the most significant impact on the GDP growth rate was recorded by the following variables: the growth rate of foreign direct investment, the growth rate of exports and the growth rate of total loans. On the other hand, the following variable recorded the most significant negative impact: the growth rate of the household sector. The study also shows that there is a positive causal relationship between the growth rate of non-performing loans and the growth rate of unemployment.

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