Shahriyar Mukhtarov

Department of Economics and Management, Khazar University, Department of Economics and Management, Azerbaijan State University of Economics (UNEC),

Azerbaijan,

smukhtarov@khazar.org

Factors that increase credit risk of Azerbaijani banks

Serhat Yüksel

School of Business, İstanbul Medipol University, 

Turkey

serhatyuksel@medipol.edu.tr

Elvin Mammadov

Department of Economics and Management, Khazar University, School of Business, 

Azerbaijan State University of Economics (UNEC), 

Azerbaijan 

elmammadov@khazar.org

Abstract. The main purpose of this paper is to analyze the influencing factors behind credit risks in Azerbaijani banks. Within this scope, we analyzed 10 biggest banks of Azerbaijan with respect to their asset size. Furthermore, 10 explanatory variables were used to achieve this objective. Annual data for the period between 2010 and 2015 was tested using the panel logit methodology. According to the results of our analysis, it was defined that 4 independent variables affect credit risk of Azerbaijani banks. It was also determined that decrease in the capital adequacy ratio, interest rate and total assets leads to increasing credit risk. We have also identified that there is a positive relationship between unemployment rate and the credit risk of Azerbaijani banks. Therefore, it can be stated that Azerbaijani banks should increase their capital adequacy ratio and total assets amount in order to minimize the negative effects from the credit risk problem.

Received: December, 2017

1st Revision: February, 2018

Accepted: April, 2018

DOI: 10.14254/2071-8330.2018/11-2/5

JEL Classification: G19, G20, G21

Keywords: Panel logit, credit risk, Azerbaijan, banks, non-performing loans