THE ASSESSMENT OF THE FINANCIAL SOUNDNESS OF THE BANKING SECTORS IN BALKAN COUNTRIES USING "EARLY WARNING INDICATORS" - A COMPARATIVE STUDY WITH POLICY IMPLICATIONS
AbstractThis paper uses an early warning model that calculates the Probability of Distress of the banking sectors of seven Western Balkan countries. The application of the model on a country level has revealed that the riskiestcountry in Western Balkan is Montenegro whereas the healthiest one is Serbia. Albania, Kosovo and Macedonia are characterized by moderate risk levels. We recommend that the efforts of the supervisory authorities in eachcountry should be focused on capitalization in the log run and on the profitability and managerial quality in the short run. The enhancement of the supervisory practices integration beyond the existing Memorandum ofUnderstanding and the creation of a centralized dataset for Balkan banking institutions are recommended.
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