Exchange Rate as a Determinant of Corporate Loan Defaults in a Euroized Economy: Evidence from Micro-Level Data

This article examines the factors that induce nonperformance of loans in an economy with a high degree of currency substitution. Using a well-diversified portfolio of corporate loans from a Serbian bank between 2008 and 2012, we find three key determinants of loan default: exchange rate, lagged GDP...

Full description

Saved in:
Bibliographic Details
Published in:Eastern European economics 2016-05, Vol.54 (3), p.228-250
Main Authors: Atanasijevic, Jasna, Bozovic, Milos
Format: Article
Language:English
Subjects:
Credit risk
Depreciation
Economic theory
Foreign exchange rates
GDP
Gross Domestic Product
Loans
macroeconomic determinants
Macroeconomics
Nonperforming loans
Revenue
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This article examines the factors that induce nonperformance of loans in an economy with a high degree of currency substitution. Using a well-diversified portfolio of corporate loans from a Serbian bank between 2008 and 2012, we find three key determinants of loan default: exchange rate, lagged GDP growth rate, and loan size. Exchange rate depreciation is associated with an increase in the default rate whether the loan is denominated in foreign or local currency. By controlling for positive effects on revenue, we show that this finding can be attributed to an increase in the firms' net input costs due to the depreciation.
ISSN:0012-8775
1557-9298
DOI:10.1080/00128775.2015.1137198