What Drives Non-Performing Loans? Evidence from Large Corporate Lending in Albania

This study examines the determinants of non-performing loans (NPLs) in Albania’s corporate lending market and explores the association between credit information sharing and loan performance. The analysis uses 11,874 corporate loans of at least €0.5 million, or the equivalent in another currency, granted between 2004 and 2016 by banks connected to the Bank of Albania’s Credit Information Registry (CIR). Established to facilitate the exchange of borrower credit information among participating lenders, the CIR is examined through a post-2008 period indicator, which coincides with, but is not limited to, the introduction of the registry. The empirical analysis combines the CREDITRISK+ framework to assess portfolio default risk and sectorial concentration with a random-effects Probit model to examine the relationship between loan characteristics, economic sectors, the CIR period indicator, and the probability of a loan being classified as non-performing. The results indicate that higher interest rates are associated with a greater probability of NPL classification. Conventional loans and overdrafts exhibit higher probabilities than leasing, letters of credit, and guarantees. Sectorial differences are also evident, particularly in health and social activities, hotels and restaurants, and construction. The post-2008 indicator is negatively associated with NPL probability, although this relationship cannot be attributed exclusively to the CIR. The findings highlight the importance of borrower screening, prudent loan pricing, sector-specific risk monitoring, and credit information sharing in corporate credit risk management.