Non-Performing Loan Rate and Implications on Financial Stability: Comparative Analysis of Systemically Important Banks and Small Banks in the Republic of Moldova

Abstract

The balance of the banking system is a key element in terms of the proper functioning and efficient development of the economy, since banks facilitate the circulation of capital and support the right development of economic activities. That being said, among the most important indicators whose purpose is to assess the quality of assets, is the nonperforming ratio, which shows the share of loans for which borrowers experience difficulties in honouring their payment obligations. The level of non-performing loans directly influences the profitability, liquidity and stability of banks, while also having a significant impact on the stability and balance of the entire financial system. In particular, the analysis of this indicator becomes relevant when comparing systemically important banks with smaller banks. Systemically important banks have a significant market, manage large volumes of assets and loans and are, respectively, controlled by stricter regulatory and supervisory requirements. As for small banks, their operations are usually subject to smaller portfolios, sometimes with a higher degree of sectoral or geographical concentration of lending. Thus, the main purpose of this article is to reflect data regarding the non-performing loan rate of systemically important banks and small banks in the Republic of Moldova in the range of 2021-2025, as well as comparing them and measuring the impacts on financial stability. CZU: [005.334:336.77]:336.71(478); JEL: G21