<abstract xmlns="http://www.w3.org/1999/xhtml"><p>In the period before the crisis, Montenegro experienced a rapid credit growth, which coincided with the privatization of several banks and was followed by the entry of foreign banking groups, amplifying the banks’ lending process and increasing competition in this sector. This paper focuses on identification and estimation of determinants of credit growth in Montenegro, exploring both demand and supply side factors, and particularly paying attention to supply factors. Our findings confirm that positive economic developments and an increase in banks’ deposit potential lead to higher credit growth. Furthermore, our findings emphasize that the banking system soundness is decisive for promoting further bank’s lending activities. We provide evidence that the weakening of banks’ balance sheets, in terms of high non-performing loans and low solvency ratio, has a negative effect on credit supply.</p><p>In addition, this paper provides a nuanced analysis of the determinants of credit growth by allowing these to be different before and after the global financial crisis. The post-crisis model finds that credit supply indicators gained in importance in explaining credit growth, while the model in pre-crisis period provides evidence that both demand and supply indicators matter in explaining credit growth.</p></abstract>

In the period before the crisis, Montenegro experienced a rapid credit growth, which coincided with the privatization of several banks and was followed by the entry of foreign banking groups, amplifying the banks’ lending process and increasing competition in this sector. This paper focuses on identification and estimation of determinants of credit growth in Montenegro, exploring both demand and supply side factors, and particularly paying attention to supply factors. Our findings confirm that positive economic developments and an increase in banks’ deposit potential lead to higher credit growth. Furthermore, our findings emphasize that the banking system soundness is decisive for promoting further bank’s lending activities. We provide evidence that the weakening of banks’ balance sheets, in terms of high non-performing loans and low solvency ratio, has a negative effect on credit supply.In addition, this paper provides a nuanced analysis of the determinants of credit growth by allowing these to be different before and after the global financial crisis. The post-crisis model finds that credit supply indicators gained in importance in explaining credit growth, while the model in pre-crisis period provides evidence that both demand and supply indicators matter in explaining credit growth.

Determinants of Credit Growth: The Case of Montenegro

Journal of Central Banking Theory and Practice

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

{"article-title":"Determinants of Credit Growth: The Case of Montenegro"}

In the period before the crisis, Montenegro experienced a rapid credit growth, which coincided with the privatization of several banks and was followed by the...

Determinants of Credit Growth: The Case of Montenegro

Published Online: May 20, 2016

Page range: 101 - 118

Received: Nov 13, 2015

Accepted: Dec 28, 2015

DOI: https://doi.org/10.1515/jcbtp-2016-0013

Keywords
credit growth, global financial crisis, fixed effects linear model

© 2016 Central Bank of Montenegro

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Determinants of Credit Growth: The Case of Montenegro

Published Online: May 20, 2016

Page range: 101 - 118

Received: Nov 13, 2015

Accepted: Dec 28, 2015

DOI: https://doi.org/10.1515/jcbtp-2016-0013

Keywordscredit growth, global financial crisis, fixed effects linear model

© 2016 Central Bank of Montenegro

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
credit growth, global financial crisis, fixed effects linear model