THE IMPORTANCE OF THE RETAIL CREDIT PORTFOLIO FOR ECONOMIC GROWTH OF MACEDONIA

The aim of this paper is to evaluate the influence of trends in retail loan portfolio on the consumption and economic growth of Macedonia. The consumption of population is one of the components of GDP, and one of its drivers is the retail credit activity. On macroeconomic level, there is wide consensus among researchers that credit activity and quality of portfolio is driven by GDP movements, unemployment ratio and indebtedness of population. Also, vice verse the activities in retail segment influence on consumption and indirectly on GDP. So these two linkages enhance between and can result in negative spiral. Negative movements in GDP influence on the quality of portfolio and higher NPL ratio. And higher NPL ratio results in further decrease in credit activity and has additional negative impact on GDP. Because of that is important to determine the causes of credit activity in this segment. The retail portfolio in the last 4 years in Macedonian banking sector is growing continuously, opposite of other Balkan countries. That is why is important to analyze the past growth of retail portfolio and to determine possible weaknesses because of its future impact on GDP. One of the most important drivers that 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 is clear empirical evidence that low interest environment triggers greater credit activity and vice versa. Another important aspect of the credit qrowth, is the maturity of the retail credit portfolio as 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 banking system of Macedonia felt the impact from financial crisis. The activities that were taken by the banking sector then can be some guidelines for future crisis. The retail credit growth will be analyzed by products in order better to understand bank strategies and reasons that contributed for such a growth. Also, the analyze of NPL ratio by product will give answer whether the quality of portfolio by products was one of the key drivers for credit activity