Macroeconomic determinants of loan default rate in banking sector of the Republic of Serbia

Abstract

In literature, there is inconsistent view of how the size of a company affects the level of credit risk. The aim of this research is to to determine whether the exposure to systemic risk increases with the size of the borrower. Empirical analysis of the time series of loan default rates, as dependent variable, on the one hand, and macroeconomic factors, as regressors, on the other hand, is based on the error correction model. Parallel to this, a panel data analysis was applied where panel units are defined at the level of the risk segment of the loan portfolio. Research results confirm that there is statistically significant impact of macroecnomic determinants on loan default rate in banking sector of Republic of Serbia. However, in the segment of small and medium-sized enterprises, the adjustment coefficient is not statistically significant. Along with this, in the short run, there is a statistically significant negative impact of the one-quarter lagged default rate on the default rate in the SMEs segment. Based on the research results, it can be inferred that the credit risk of the SMEs segment is the most resistant to the influence of macroeconomic factors. SME are the most flexible because they are not burdened by size, and on the other hand, they are not endangered as micro businesses by the risk of concentration of one large customer and weak negotiating position in relation to creditors and suppliers.