Affect Credit Risk Research Articles

Loan loss provision index and bank risk: An empirical study in Indonesia

The purpose of this study is to determine an index for loan loss provision as a new measurement and examine its effect on bank risk. The study also compared the results with a commonly used measurement, which is the ratio of loan loss provision (LLP). The population of this study is all conventional banks, including foreign banks with branch offices in Indonesia. The period of observation is from 2015 to 2018. The sample selection based on the purposive sampling method resulted in 86 banks. This study used panel data analysis. The data were collected from the annual reports of each bank and the website of the Financial Services Authority. The research findings show that the index of loan loss provision can decrease credit risk, liquidity risk, and operational risk. Meanwhile, the ratio of the loan loss provision only affects operational risk and does not affect credit risk and liquidity risk. The findings of this study suggest that the index for loan loss provision is more suitable to be used as an alternative measurement in the research design related to loan loss provision because the implementation of IFRS 9 requires more detailed disclosure of how banks estimate the amount of loan loss provision.

How Does Profitability, Size, and Capital Affect Credit Risk?: Evidence from Islamic Banks in Asian Countries

The study aims to analyze the effect of profitability, size, and capital on the credit risk of Islamic banks in Asian countries through the mediating variable of financing by path regression analysis. Data were obtained quarterly from 2015Q1 – 2020Q3. Method of the study usedcausal research design, namely research that has the main objective of proving a a relationship affecting and being influenced by the variables studied. The findings conclude that size and profitability significantly affect credit risk through the financing mediation variable. Capital does not significantly reduce credit risk because it only functions to mediate financing. Meanwhile, increased financing will also increase the credit risk of Islamic banks in the Asian Region. The study can explain why there is an inconsistency of the effect profitability, size, capital, on credit risk because there is a financing mediation role. The implication of policy that the Islamic bankers in Asian countries must more prudent to manage financing so that credit risk is controlled.

ОЦІНКА КРЕДИТНОГО РИЗИКУ КОМЕРЦІЙНОГО БАНКУ В УМОВАХ КОРОНАКРИЗИ

The article carries out a thorough analysis of the essence of the concept of "credit risk", high-lights its causes and main features. The authors provide an analysis of the main indicators of the credit market of Ukraine, namely the dynamics of changes in credit risk factors. Such indicators include: the share of the loan portfolio in the assets of banks, the ratio of equity capital to the loan portfolio, the share of loans in foreign currency, the share of overdue loans and the share of non-performing loans, NBU credit risk standards and their compliance by commercial banks. Also, after the analysis, the au-thors proposed an organizational and economic mechanism of credit risk management, which contains such components as: methodical base, provision, levers and principles, indicators, resources, factors affecting credit risk, management and control bodies, the object and purpose of management. After that, the authors outline the main principles of its operation and recommendations for implementation. In general, for the implementation of the proposed mechanism, it is envisaged to finalize the regulato-ry and legal framework, conduct a flexible and adaptive credit policy to changes in the market situa-tion both at the level of the country and at the level of an individual commercial bank, and introduce a single broad information base for assessing all criteria of the solvency of each individual the borrow-er, development of an effective personnel policy of a commercial bank, provision of an independent, systematic and continuous assessment of credit risks in order to ensure the appropriate level of finan-cial stability of the bank.

The Determinants of Credit Risk Under Dual Banking System: Indonesian Experience Based on Bank Specific Variables

In Indonesian banking system, conventional banks are operating side by side with Islamic banking in a dual banking system. In terms of the credit risk determinants, Islamic banks should be affected by the different factors as conventional banks. However, the similarity of Islamic banks and the conventional bank in terms of contracts might lead to the opinion the same variables are affecting the performance of Islamic and conventional banks. The objective of the study is to examine and obtain an understanding on how the credit and financing in Indonesian dual banking system responses to changes in bank-specific variables. The main approach to fit the model used in this study is the dynamic panel data. Based on the result of the combined model, there are some independent variables that significantly affect credit risk. Profitability significantly affects credit risk with a negative relationship. While size significantly affects credit risk with a positive relationship. When it comes to the dummy variable, it can be said that the type of bank doesn’t play a significant role in determining the credit risk. In other word, there is no difference between Islamic bank and conventional banks in terms of credit risk. To analyze the crisis effect deeper, we compare the result of conventional banking model 2016-2020 and Islamic banking model 2016-2020. There is no independent variable that significantly affect the credit risk in the conventional banking model 2016-2020, three out of four independent variables affect credit risk significantly in the Islamic banking model 2016-2020. This is because conventional banks tend to play safe by avoiding the disbursement of credit and focusing on derivatives. However, this strategy is not suitable for Islamic banking as they are not allowed to do speculative activities. Islamic banking are still focusing on traditional banking activity.

Changes in New Private Law of the Czech Republic and Implementation of Basel III

Competition in the financial market puts currently new requirements for cost reduction on financial institutions. Available sources of cost reduction are seen i.a. in minimizing legal risks, which can reduce the uncertainty associated with enforcement and interpretation of legal acts, treaties and regulations in the field of contractual obligations. In this regard, banks in the Czech Republic are looking for new ways to reduce costs in the ongoing implementation of Basel II and preparation for implementation of Basel III. The central problem to which attention is focused is to ensure the required level of capital adequacy. This is conditioned i.a. by their risk management system. Capital adequacy may affect credit risk substantially. Besides others, the level of credit risk may be affected to a considerable extent by application of hedging instruments. This paper presents conclusions of the executed comparison of the existing and new private law provisions in the Czech Republic and, based on that, draws new opportunities and difficulties for banks in managing their credit risk and capital adequacy. The focus is only on the hedging instruments that may affect the activities of banks in a significant way.

The Effect of Corporate Governance Medied by Capital Adequacy and Credit Risk on Financial Performance (Study on Commercial Banks Listed on the Indonesia Stock Exchange)

This study discusses the causal relationship between bank corporate governance, capital adequacy and the probability of bank failure due to credit risk from the creditor's perspective on the bank's financial performance. The probability of failure of commercial banks in measuring risk-taking behavior. The special characteristics of commercial banks with smaller board sizes, shareholder equity, and long-term loans are associated with significantly lower levels of credit risk. Larger supervisory boards and short-term debt are associated with lower levels of credit risk.This study aims to examine and prove the effect of corporate governance on capital adequacy, and corporate governance directly and mediated by capital adequacy and credit risk impact on financial performance. Test and prove that corporate governance affects credit risk. Test and prove the effect capital adequacy to credit risk, as well as capital adequacy directly and mediated by credit risk have an impact on financial performance. Test and prove the effect of credit risk on financial performance. The analysis technique uses Generalized Structured Component Analysis (GSCA). The unit of analysis is 30 conventional commercial banks listed on the Indonesia Stock Exchange for the period 2016-2020, using panel data, namely time series and cross sectional data, with a number of observations of 30 x 5 years = 150 financial statements.The findings of this study are expected to contribute to the development of science in the study of financial management, especially the theory of corporate governance and credit risk management, namely: corporate governance as a source of value creation, ensuring capital adequacy as a buffer for the risk of losing credit portfolios and managing credit risk at a minimum level. to maintain financial stability and increase Profit which ensures financial performance remains in good or healthy condition. This study concludes that corporate governance has a significant influence on capital adequacy and financial performance, because good corporate governance will manage an optimal capital structure and the availability of capital adequacy that makes the company more able to operate and invest optimally, so as to generate maximum profit to improve financial performance. The influence of corporate governance on bank financial performance is also mediated by capital adequacy. Corporate governance has no significant effect on credit risk. Corporate governance cannot determine credit risk, because credit risk is the responsibility of company management in order to control risk in banking operations. Capital adequacy has a significant influence on credit risk and financial performance, because capital adequacy for the company's operations and investments will improve the bank's financial performance. Capital adequacy has a direct and mediated effect of credit risk on financial performance. Sufficient capital is able to reduce credit risk and improve financial performance, because credit risk which has a negative impact on financial performance has been successfully reduced. Keywords: Corporate Governance, Capital Adequacy, Credit Risk, Financial Performance. DOI: 10.7176/RJFA/12-20-06 Publication date: October 31 st 2021

Real Estate Markets and Lending: Does Local Growth Fuel Risk?

Real estate price growth affects credit risk for several reasons: it provides input for economic forecasts as it’s closely tied to economic growth; when used as collateral by banks, rising real estate prices may decrease both expected and actual losses; and banks may become less risk averse in lending practices in the presence of rising property prices. Therefore, we analyze these effects on loan portfolios’ estimated and realized risks on a local level. Using data of 390 German savings banks, however, we find that real estate prices have little or no impact on savings banks’ credit portfolio risk or risk precautions.

How do “gatekeepers” affect credit risk?

How do “gatekeepers” affect credit risk?

Factors Affecting Credit Risk of Conventional Banks Listed in Indonesia Stock Exchange

This research aims to analyze factors affecting bank credit risk. The sample of this study uses 34 conventional banks listed in Indonesia Stock Exchange for the period of 2015-2019. The sampling technique uses purposive sampling and the analysis method uses panel data regression. The independent variable in this study consists of bank size, return on assets, loan to deposit ratio, lending interest rate, gross domestic product, and inflation rate, while the dependent variable is non-performing loans. The result shows that return on assets and inflation rate have significant negative effect on non-performing loans while gross domestic product has significant positive effect on non-performing loans. On the contrary, bank size, loan to deposit ratio, and lending interest rate have no effect on non-performing loans. The findings are expected to be the reference for conventional banks in minimizing the credit risk by increasing the profitability and improving a better credit management when the economic growth, and inflation rate are getting higher.

Does COVID-19 Pandemic Affect Bank Credit Risk?

This study aims to examine the impact of the COVID-19 pandemic on banking credit risk in Indonesia, namely conventional banks and Islamic banks which are proxied through NPL and NPF variables. This study used a sample of 12 conventional commercial banks and 12 Islamic commercial banks in Indonesia. The data used is quarterly data, namely from the 1st quarter of 2017 to the 4th quarter of 2020. Furthermore, in this paper, dummy variables are used to describe the period before and after the COVID-19 pandemic that caused various declines in the economy. The method in this study uses a panel data analysis approach. The results show that COVID-19 significantly affects credit risk in the overall model and conventional bank models. Meanwhile, no correlation was found between the COVID-19 pandemic and the Islamic bank model. Furthermore, the variables found to have a significant relationship with credit risk are bank capital, total loans, and bank profitability.

Corporate governance in relationship with bank risk management

The purpose of this research is to examine the relationship between corporate governance and risk management of Indonesian banks. Bank risk managements are measured by market risk, credit risk, and liquidity risk. The samples used in this study were all banks registered in Indonesia during the 2010–2016 period. The data sources were obtained from the annual reports and bank financial reports. The results show that corporate governance implementation in Indonesia was able to affect credit risk and liquidity risk. There were differences in credit risk and liquidity risk in banks with different governance ratings, but not at market risk.

Factors affecting credit risk in lending activities of joint-stock commercial banks in Vietnam

This paper studies factors affecting credit risk in lending activities of joint-stock commercial banks in Vietnam. Data is collected from audited financial statements of 23 banks, and macroeconomic data from General Statistics Office of Vietnam in the period of 2009 – 2019. This paper uses GMM method which is carried out by using R programing language in Jupyter Notebook. The findings show that lagged credit risk, profitability and inflation have positive effects on credit risk, while bank capital, bank size, economic growth and loans to deposits ratio have negative ones. In addition, the findings also show that the nonlinear effects of loan growth on credit risk with U shape relationship, and this paper also calculates the relative importance of each variable.

Macroeconomic Determinants Affecting Credit Risk in Central and Eastern Europe

Abstract Research background: A number of microeconomic and macroeconomic variables affect credit risk. Macroeconomic factors are particularly significant for credit risk volatility. Purpose: The purpose of this study is to identify significant macroeconomic determinants influencing credit risk in the banking sector of Central and Eastern Europe. This goal was achieved as a result of a statistical and econometric analysis. Research methodology: The empirical part includes a statistical study based on an analysis of primary statistics and Pearson’s correlation coefficients between selected variables and the credit risk measure. Afterwards, on the basis of aggregated panel data at the country level, an econometric model was made through the GMM system. Novelty: A statistical and econometric analysis was conducted that showed the occurrence of long-term shocks for credit risk for Central and Eastern European countries, which is in opposition to short-term shocks based on global credit risk studies. The stability of results for the impact of economic growth, unemployment rate and inflation rate on credit risk was confirmed. The occurrence of “moral hazard” in the banking sector of some of the examined countries was also proved. A comparison was made of the impact of macroeconomic variables on credit risk in particular examined countries. A considerable diversity of countries was demonstrated in terms of “moral hazard” in the banking sector.

Does the Federal Open Market Committee cycle affect credit risk?

AbstractThis paper studies the returns of credit default swap (CDS) indices over the Federal Open Market Committee (FOMC) cycle. We document that the CDS return is significantly higher in even weeks than in odd weeks of the FOMC cycle. The biweekly pattern in the CDS market is not a mere reflection of that in the stock market. A simple trading strategy based on the biweekly pattern yields an annual excess return of 8.8%. This pattern is linked to the resolution of macroeconomic uncertainty by the biweekly schedules of the Fed Reserve internal Board of Governors meetings. We provide further evidence that the Fed affects the CDS market via unexpected information signals and monetary policies that lead to reductions in the risk premium.

Faktor-Faktor Yang Mempengaruhi Risiko Kredit Sektor Perbankan Di Bursa Efek Indonesia

Bank fundamental factors affect credit risk management policies, because by knowing the internal conditions of the bank, the credit extension policy will be adjusted, in order to minimize the risk of failure or bad credit that creates losses for the Bank. The purpose of this study is to determine the factors that affect credit risk in the banking sector in Indonesia in 2015-2019. This study uses a quantitative approach and statistical tools like multiple regression analysis in conducting hypothesis testing. The results showed that the factors affecting credit risk in the banking sector on the Indonesia Stock Exchange were capital adequacy (CAR) and management quality (BOPO), while profitability (NIM) and liquidity (LDR) did not affect the credit risk (NPL) of the banking sector on the Indonesia Stock Exchange. The coefficient of determination (R2) in this study was 32.1%, so that about 67.9% of the credit risk was explained by other variables not examined in this study.

Does boardroom gender diversity decrease credit risk in the financial sector? Worldwide evidence

Does boardroom gender diversity decrease credit risk in the financial sector? Worldwide evidence

Does market competition affect all banks equally? Empirical evidence on Montenegro

Abstract Bank stability is an important aspect of financial stability, especially in bank-centric systems like that of Montenegro. Hence, it is important to analyse risks affecting stability of both the banking and financial system as a whole. Rising competition among banks could pose a challenge and possibly change the level of credit risk, especially if the banks are small in size. This can affect both credit risk and financial stability. Small-sized banks could be the ones to react less nimbly to a changing market structure than bigger banks with stable market shares. This study tries to answer whether competition affects credit risk in Montenegro and whether banks differing in size react differently. Panel data techniques were applied to eleven banks which account for over 90 percent of the banking sector. The results indicate that market concentration could be particularly harmful when it comes to credit risk of small-sized banks, while large-sized banks are less affected. Overall, the increasing competition may positively affect credit risk in Montenegro.

The debtor-attributes information and the probability of performing loans in the microfinance sector

Based on the recent evidence of the high rate of non-performing loans in Indonesia’s microfinance sector, there is a need to formulate a mechanism that could control such credit risk. This study attempts to identify the pivotal determinant factorsresponsible for performing loans. In particular, this research proposes demand-side factors, such as debtor-attributes information, as critical for ensuring installment payments. Using unique data from microfinance in Central Java, it employs logistic regression analysis to prove that debtors’ age and type of collateral significantly affect loan performance. This paper further shows that other variables, such as the payment period and the interest rate, also substantially affect credit risk. These findings have empirical and practical significance. For practical purposes, this research develops the new perspective that debtor-specific information, particularly on their behavioral aspects, requires more in-depth review. This insight may be useful for developing new credit-analyzing tools to alleviate severe non-performing loans. Empirically, this research improves the study of antecedent variables that influence performing loans.

The effects of the internal control system on the risk, profitability, and compliance of the U.S. banking sector: A quantitative approach

AbstractThis is strong quantitative research investigating whether and how the components of the internal control system affect the credit risk, profitability, and compliance of the U.S. banking sector. Based on the COSO Framework, Basel Committee Frameworks, and the literature, the components of the internal controls are quantified. This quantitative nature distinguishes this study from others in this field since most of the studies up to now have investigated these topics by theoretical approaches. Eleven independent variables are analysed in three different regression models, with credit risk, profitability, and compliance being the dependent variables in each model. After cleaning the data from outliers, several tests are performed, while a panel set of data is used comprising the 210 biggest U.S. bank holding companies. Fixed‐effects regression is applied in the three models, while the years under examination are the five fiscal years 2013–2017. Most of the data are taken from the proxy statements (DEF 14A) and the 10‐K statements because of their qualitative nature. The key results indicate that Risk Assessment, Control Activities, and Information and Communication components strongly affect credit risk. The first (Control Environment) and last (Monitoring) components have a significant effect on credit risk, though only from the perspective of the board's number and the expertise of the audit committee, respectively. In the same line, internal controls significantly affect the profitability and compliance of U.S. banks, except for the Risk Assessment component in the first case and the Control Environment component in the second case, respectively. Control Activities component and the Information and Communication component have a significant and positive relationship with the banks' profitability, while these two components are significantly and negatively correlated with the banks' compliance.

Firms that age well: life cycles and default risk

Firms that age well: life cycles and default risk