Forecasting of the Influence of Financial Institutions Loan Portfolio Change for the Economic Sectors of the Country

Open access

Abstract

Purpose of the article is to predict the interrelationship between the change of financial institutions loan portfolio and activities of the main economic sectors in Lithuania. Coherence between financial intermediation and economic growth cause a great interest of economists during the late decade. Prevailed opinion that banking sector is the reflection of economic growth and expansion and that its role - to intermediate in the saving and investing needs, reallocating funds between economic activities, was replaced by sentiment that strong and stable banking sector could be not only the result of economic development, but also the cause of this growth. The purpose of the article is to accomplish forecast of the influence of financial institutions loan portfolio change to the main economic sectors in Lithuania for 2013-2017 period.

Methodology/methods Analysis of variation of loan portfolio according economic sectors shows the tendencies of financing of various activities in the past. Regression - correlation analysis helps to identify the influence of loan portfolio changes and their impact for GDP and employment in separate economic sectors. The forecasting of different economic sectors was made using extrapolation methods (smoothing, trend line) and econometric method (one dimensional regression).

Scientific aim: Economic situation in Lithuania forces to estimate decisions made by banking sector that influence not only individual countries but also the global economy. In this regard, there is a natural question of whether the process of underway stagnation should be judged as a timely economic development stage, or perhaps as the result of policies pursued by financial institutions? Prerequisites for the problem situation forces to overhaul loan portfolio managed by financial institutions, evaluate its change on the country's economy sectors, and to investigate these relationships forecasts.

Findings: There is a strong link between financial sector development and economic growth. The results showed that the volume of loans has a very close interdependence with the GDP. Data obtained for loan portfolio forecasting for 2013-2017 showed that the growth of loans can be seen in all sectors except construction. Employment should grow only in public and retail sectors.

Conclusions (limits, implications etc): The most relationship with GDP was established in retail and public sectors. Determining the correlation coefficients and regression equations between loans and employment the strongest relationship found in retail, industrial and construction sectors. The study encountered lack of data for 2012, since the information about the composition of the loan portfolio in different sectors since November 2011 is no longer provided to the Bank of Lithuania.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • Akinlo A. E. Egbetunde T. (2010). Financial Development and Economic Growth: The Experience of 10 Sub- Saharan African Countries. The Review of Finance and Banking 2(1) 17-28.

  • Aslund A. (2011). 2008-2010 m. Rytų Europos finansų krizės pamokos [The Lessons of the Financial Crisis in Eastern Europe for 2008-2010]. Money Studies 1 78-85.

  • Balkevicius A. (2012). Finansų sektoriaus raidos įtaka ūkio plėtrai [Influence of the Financial Sector on Economic Development]. Mykolas Romeris University. Business systems andeconomics 2(2) 82-94.

  • Beck T. Demirgüc-Kunt A. Laeven L. Levine R. (2008). Finance Firm Size and Growth. Journal of Money Credit and Banking 40(7) 1379-1405.

  • Beck T. Levine R. Levkov A. (2010). Big Bad Banks: The Winners and Losers from Bank Deregulation in the United States. Journal of Finance Forthcoming65(5) 1637-1667.

  • Dehejia R. Lleras-Muney A. (2003). Why Does Financial Development Matter? The United States from 1900 to 1940. National Bureau of Economic Research Working Paper 9551.

  • Dudzeviciute G. (2006). Lietuvos bankininkystės sektoriaus poveikis ekonomikos augimui [The Impact of Banking Sector on Economic Growth: Theoretical and Practical Aspects]. Business: Theory and Practice 8(2) 128-135.

  • Garbaravicius T. Kuodis R. (2002). Lietuvos finansų sektoriaus struktūra ir funkcionavimas [The Structure and the Functioning of the Financial Sector in Lithuania]. Monetary Studies 1 18-47.

  • Goldsmith R.W. (1969). Financial Structure and Development New haven U.S. Yale UniversityPress 36.

  • Jayaratne J. Strahan P.E. (1996). The Finance-Growth Nexus: Evidence from Bank Branch Deregulation. Quarterly Journal of Economics111(3) 639-670.

  • Kendall J. (2009). Local Financial Development and Growth. The World Bank4838 38.

  • King R.G. Levine R. (1993) Finance and Growth: Schumpeter Might Be Right. Quarterly Journal ofEconomics 108(3) 717-738.

  • Kuodis R. (2008). Lietuvos ekonomikos transformacija 1990-2008 metais: etapai ir pagrindinės ekonominės politikos klaidos [Lithuanian Economic Transformation of the year 1990-2008: stages and Main Economic Policy Mistakes]. Monetary Studies 2 97-105.

  • Kumar K. B. Rajan R.G. Zingales L. (1999).What Determines Firm Size? National Bureau ofEconomic Research Working Paper 7208.

  • Lakstutiene A. (2008). Bankų sektoriaus rodiklių ir bendrojo vidaus produkto priklausomybės tendencijų vertinimas [Correlation of the Indicators of the Financial System and Gross Domestic Product in European Union Countries]. Engineering Economics 3 (58) 7-18.

  • Levine R. Zervos S. (1998). Stock Markets Banks and Economic Growth. American EconomicReview 88 (3).537-558.

  • Levine R. (2005).Finance and Growth: Theory and Evidence. Handbook of Economic GrowthAmsterdam Netherlands Elsevier Chapter 12 1(1) 865-934.

  • Levine R. Loayza N. Beck T. (2000). Financial Intermediation and Growth: Causality and Causes. Journal of Monetary Economic 46(1) 31-77.

  • Rajan R. G. Zingales L. (1998). Financial Dependence and Growth. American Economic Review 88(3) 559-586.

  • Ramanauskas T. (2005). Bankų kredito didėjimas makroekonominiu požiūriu [Assessment of bank credit growth from macroeconomic perspective]. Monetary Studies 3 78-97.

  • Rousseau P.L. Wachtel P. (2002). Equity Markets and Growth: Cross-country Evidence on Timing and Outcomes 1980-1995. Journal of Banking & F2inance 24(12) 1933-1957.

  • Schumpeter J.A. (1912). Theorie der wirtschaftlichen Entwicklung. Duncker & Humblot 176-198.

  • Starkeviciute M. (2011). Makroekonominis nesubalansuotumas priežastys ir pasaulinė valdysena [Macroeconomic imbalances: determinants and global governance]. Monetary Studies1 64-77.

  • Statistics Lithuania (2004-2012). Employment Rate. [Online] [Cited 2013-01-10] Available from Internet:

  • The Bank of Lithuania (2004-2011). Loan Portfolio to Non-financial Corporations and Households. [Online] [Cited 2012-12-08] Available from Internet : http://www.lb.lt/stat_pub/statbrowser.aspx?group=7274&lang=lt \

  • The Bank of Lithuania (2004). Lithuanian Economy Review. Vilnius. [Online] [Cited 2013-02-08] Available from Internet: < http://www.lb.lt/metu_ataskaita_2004>

  • The Ministry of Agriculture of the Republic of Lithuania. (2012). An Overview of the Implementationof the Lithuanian Rural Development Programme for 2007-2013. [Online] [Cited 2013-01-17] Available from Internet:

  • The Ministry of Agriculture of the Republic of Lithuania. (2008). Lithuanian Agriculture Review 162.

  • Wurgler J. (2000). Financial Markets and the Allocation of Capital. Journal of Financial Economics 58(1-2) 187-214.

  • Zhang J. Wang L. Wang S. (2012). Financial Development and Economic Growth: Evidence from China. Forthcoming on Journal of Comparative Economics40 (3) 393-412.

Search
Journal information
Metrics
All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 152 32 0
PDF Downloads 75 35 0