| Abstract [eng] |
The main purpose of this master thesis is to determine impact of loan portfolio diversification on financial stability, profitability and risk of Lithuanian credit institutions taking into account additional moderating variables such as credit institution size, type, competitive environment and business model. This work paper analysis different approaches in literature of loan portfolio diversification as well as diversification effects on credit institutions performance. Traditional banking theory states that more diversified loan portfolio ensures better financial stability, return and lower risk of credit institutions. The Corporate finance theory challenges that and says that credit institutions should be more specialized. In the literature is found that there is no one approach how loan portfolio should be diversified. Also, additional factors are found which can modify analyzed relationship. Author analyzes 11 Lithuanian credit institutions in 2015-2024. In the paper is estimated fixed effects models with CR2 standard errors with Satterthwaite correction. Results show that Lithuanian credit institutions are not homogeneous. It is found that loan portfolio diversification has linear positive impact for financial stability. Meanwhile analyzing profitability and risk non linear effects are found. The author states that loan portfolio can be beneficial for the smallest credit institutions in the market considering profitability factor but detrimental for credit risk. The biggest credit institutions in the market can have positive impact of loan portfolio diversification on credit risk but negative on profitability. These results show that one single loan portfolio diversification policy could not be applied to the entire market of Lithuanian credit institutions. The author also provides suggestions on how this research could be improved and conducted by other authors. |
