THE IMPORTANCE OF THE RETAIL CREDIT PORTFOLIO FOR ECONOMIC GROWTH OF MACEDONIA
Abstract: The aim of this paper is to evaluate the infl uence of trends in retail loan portfolio onthe consumption and economic growth of Macedonia. The consumption of population is one ofthe components of GDP, and one of its drivers is the retail credit activity. On macroeconomiclevel, there is wide consensus among researchers that credit activity and quality of portfolio isdriven by GDP movements, unemployment ratio and indebtedness of population. Also, viceverse the activities in retail segment influence on consumption and indirectly on GDP. So thesetwo linkages enhance between and can result in negative spiral. Negative movements in GDPinfl uence on the quality of portfolio and higher NPL ratio. And higher NPL ratio results infurther decrease in credit activity and has additional negative impact on GDP. Because of thatis important to determine the causes of credit activity in this segment. The retail portfolio in thelast 4 years in Macedonian banking sector is growing continuously, opposite of other Balkancountries. That is why is important to analyze the past growth of retail portfolio and to determinepossible weaknesses because of its future impact on GDP. One of the most important driversthat determine the future credit growth is the quality of retail credit portfolio in the moment. Another important aspect for the portfolio trend will be the interest rate environment. There isclear empirical evidence that low interest environment triggers greater credit activity and viceversa. Another important aspect of the credit qrowth, is the maturity of the retail credit portfolioas a way to decrease the monthly installments and to accumulate greater risk on longer term.Special focus of this paper will be the trend in retail loan portfolio after 2008, when the bankingsystem of Macedonia felt the impact from fi nancial crisis. The activities that were taken bythe banking sector then can be some guidelines for future crisis. The retail credit growth will beanalyzed by products in order better to understand bank strategies and reasons that contributedfor such a growth. Also, the analyze of NPL ratio by product will give answer whether the qualityof portfolio by products was one of the key drivers for credit activity.
Key words: Retail portfolio, Macedonia, NPL, banking systems, growth rate