Affect Credit Risk Research Articles

Determinants of Credit Risk: Evidence From Commercial Banks in Malaysia

The purpose of this study is to determine the relationship between microeconomic factors with credit risk among selected commercial banks in Malaysia. For this purpose, a sample of seven out of 27 commercial banks in Malaysia was selected and the microeconomic factors affecting credit risk with six measurements of return on asset (ROA), bank size, leverage, the ratio of capital, interest income and return on equity (ROE) were examined by applying Panel Regression Fixed Effect (FE) Model for a period 20 years from 1998 to 2017. The scope of the study covers seven selected commercial banks in Malaysia namely: Affin Bank Berhad, Alliance Bank Malaysia Berhad, CIMB Bank Berhad, Hong Leong Bank Berhad, Malayan Banking Berhad, Public Bank Berhad and RHB Bank Berhad. This study is using credit risk proxy by non-performing loan for dependent variable while independent variables that have been selected were returned on asset (ROA), bank size, leverage, the ratio of capital, interest income and return on equity (ROE). The findings of the study managed to reject the null hypothesis for return on asset, bank size, leverage, interest income and return on equity which indicates the five microeconomic variables give a significant relationship with credit risk. There are positive relationships between leverage, interest income and return on equity with credit risk while return on asset, bank size and ratio of capital are negatively related to credit risk. However, the study fails to find any significant relationship between the ratio of capital and credit risk for commercial banks in Malaysia.

Corporate Payout Policy and Credit Risk: Evidence from Credit Default Swap Markets

We examine whether and how payout policy affects credit risk using evidence from the credit default swap (CDS) market. CDS spreads increase substantially in response to announcements of dividend cuts, especially during recessions and among firms experiencing financial distress. CDS spreads also react more strongly to permanent and less anticipated dividend cuts. The size of the CDS reaction is more pronounced for financial firms, which are inherently more opaque. In contrast, CDS spreads react weakly to dividend raises and share repurchases. The results show that the information effect of dividend changes dominates the wealth-transfer effect. This paper was accepted by Kay Giesecke, finance.

Which Sustainability Dimensions Affect Credit Risk? Evidence from Corporate and Country-Level Measures

Amid growing concern over sustainability issues, there is increasing demand to incorporate environmental and social issues into assessments of credit risk, the possibility of loss resulting from a borrower’s failure to meet their financial obligations. In this paper, we sought to identify empirical evidence of a relationship between sustainability measures and credit risk. We contribute to this literature in three main ways: firstly, by using a measure that considers the financial materiality of sustainability issues across different industries; secondly, by using corporate default swap (CDS) spreads as a market-based measure of credit risk; and thirdly, by exploring the context-dependent nature of the relationship. Though the extent differs across industries, our results suggest risk-reducing effects across several corporate sustainability dimensions: climate change; natural resource use; human capital and corporate governance. Furthermore, we found that country sustainability plays a moderating role in the nexus between corporate sustainability and credit risk. Hence, a one-size-fits-all policy may not be suitable in developing the credit-relevant standardization of sustainability factors. Nevertheless, the robustness of corporate governance throughout our findings suggests that corporations should strengthen governance frameworks and procedures prior to embarking on environmental and social objectives to mitigate credit risk.

The impact of internal and external factors of credit risk on businesses: An empirical study of Chinese commercial banks

AbstractCredit risk has great impact on the banks' profitability as large chunk of banks' revenue and interest income comes from loans. Factors that affects credit risk can be classified into microeconomic and macroeconomic factors. These factors have an impact on credit risk levels. Using secondary data from 2005 to 2018 for listed commercial banks on the two stock exchanges in China mainland, the study explored the effect of both internal and external factors that influences credit risk in the banking industry. A positive relationship was found between bank solvency and credit risk. Similarly, the study revealed a positive correlation between credit risk and interest rate. On the contrary, operation efficiency and gross domestic product growth rate revealed an inverse relationship with credit risk. The findings will add up to existing literature and guide policy‐makers in implementing measures to control the influencing factors of credit risk in the banking industry.

How does bank competition affect credit risk? Evidence from loan-level data

How does bank competition affect credit risk? Evidence from loan-level data

Security design with status concerns

Security design with status concerns

Does the FOMC Cycle Affect Credit Risk?

Does the FOMC Cycle Affect Credit Risk?

Do Corporate Social Responsibility Activities Reduce Credit Risk? Short and Long-Term Perspectives

This study examines the short- and long-run effects of corporate social responsibility (CSR) activities on the credit risk implied in credit derivative prices. Measuring the different term effects on credit risk by the slope of credit default swap (CDS) spreads with different maturities, we investigate how CSR activities affect credit risk differently in the short and long run. Fama-MacBeth regressions reveal that firms with higher CSR scores tend to have more gently decreasing CDS slopes because, on average, CSR activities reduce credit risk in the long run more than in the short run. An analysis of individual CSR categories shows that while community, diversity and employee relations lead to a lower CDS slope, human rights and product characteristics increase the CDS slope. This finding suggests that not all CSR activities affect short-term and long-term credit risks in the same direction. Therefore, even though CSR activities can reduce credit risk in the long-run, some CSR activities may increase the short-term credit risk and hence increase short-term borrowing costs.

Risco de crédito e as políticas monetárias convencional e não convencional: o caso brasileiro

O crédito bancário é considerado umimportante canal de transmissão de choques monetários e financeiros para o lado real da economia. Este artigo investiga a relação entre risco de crédito e a políticamonetária, conduzida tanto de forma convencional quanto não-convencional, e analisa os efeitos e canais de transmissão de choques exógenos no risco de crédito, taxa nominal de juros e alíquota de compulsório sobre o ciclo econômico. O modelo de Gertler & Karadi (2011) é modificado para incorporar risco de crédito endógeno dado pela probabilidade de default em empréstimos bancários pela firma. Os resultados de simulações para a economia brasileira revelam uma taxa de default anticíclica, que compensa os bancos por perdas com os “maus” pagadores. Uma regra de compulsório anticíclica mais agressiva contribui para a estabilização do ciclo econômico sem afetar significativamente o risco de crédito.

Information authenticity, spreading willingness and credit risk contagion – A dual-layer network perspective

Information authenticity, spreading willingness and credit risk contagion – A dual-layer network perspective

Does crisis affect credit risk in developing countries? The Case of the Jordanian Market

At the core of the recent global financial and economic crisis marked by its magnitude, credit risk turned out to be a powerful catalyst. The objective of this paper is mainly to follow up on the evolution of credit risk on the Jordanian market during the recent economic and financial international crisis. Based on the linear discriminant Z-Score model and KMV structural model, we recognize the increase in credit risk during the crisis period. On the whole, the confrontation between models highlights the robust correlation between the accounting results of a company and its market value and therefore indicates the need to consider the macroeconomic context in an open economy for the evaluation of the risk of credit.
 
 JEL codes: E551, G3, C1

Does crisis affect credit risk in developing countries?

At the core of the crisis marked by its magnitude, credit risk turned to become a powerful catalyst. The objective of this paper is mainly to follow up the evolution of the credit risk at the Jordanian market during the recent economic and financial international crisis. Based on the linear discriminant model Z-Score and KMV structural model, we recognize the increase in the credit risk during the crisis period. On the whole, the confrontation between models highlights the robust correlation between the accounting results of a company and its market value.

English

A bank’s financial performance and survival can be threatened when there is an increased exposure to credit risk. On this basis, this study seeks to identify the factors that determine the level of bank credit risk and further estimates the effects of bank credit risk on corporate financial performance using financial data from banks on the Ghana Stock Exchange over a 15-year period from 2003 to 2017. Using the method of 2SLS, it was observed variables such as capital adequacy, operating efficiency, profitability, and net interest margin are inversely related to credit risk. Conversely, bank size and financing gap tend to relate positively with credit risk. Also, anualised changes in inflation tend to positively affect credit risk. Again, it was observed that, increase in bank credit risk negatively affects corporate financial performance which is consistent with Basel accord. Thus, for banks to survive in their industry, critical attention needs to be paid to management of its credit risk exposure.   Key words: Credit risk, corporate performance, loan default, interest rate.

Bank’s Credit Risk and Its Determinants: A Study on Bank of Ayudhya in Thailand

Bank’s Credit Risk and Its Determinants: A Study on Bank of Ayudhya in Thailand

Comparative Analysis of Credit Risk of Islamic and Conventional Banks: (A Case Study of Pakistan)

Comparative Analysis of Credit Risk of Islamic and Conventional Banks: (A Case Study of Pakistan)

Credit Risk Management: A Panel Data Analysis on The Islamic Banks in Turkey

Credit Risk Management: A Panel Data Analysis on The Islamic Banks in Turkey

Pengaruh Faktor Internal dan, Eksternal terhadap Risiko Kredit pada Bank Perkreditan Rakyat (BPR) di Indonesia

This study aims to know the effect of internal factor (capitalization, profitability, inefficiency, size) and external factor (economic growth, inflation) on credit risk of micro bank in Indonesia. This research uses purposive sampling method. Dependent variable in this research is credit risk. The independent variables in this study are capitalization measured by capital adequacy ratio, profitability measured by return on asset, inefficiency measured by BOPO ratio, size, economic growth, and inflation. The results show that credit risk is significantly influenced by capitalization, profitability, inefficiency, size, economic growth, and inflation. Inefficiency and inflation variables have a positive effect on credit risk, while variable capitalization, profitability, size, and economic growth negatively affects credit risk.
 
 Keywords: capitalization, profitability, inefficiency, size, economic growth, inflation, credit risk, rural bank.

Does Banking Management Affect Credit Risk? Evidence from the Indian Banking System

This study investigated the impact of banking management on credit risk using a sample of Indian commercial banks. The study employed dynamic panel estimations to evaluate the link between banking management variables and credit risk. The empirical results show that an increase in loan portion over total assets does not necessarily increase problem loans. The findings suggest that high capital requirements and large bank size do not reduce default risk, whereas high profitability and strong income diversification policies lower the likelihood of default risk. The overall empirical results supported the “operating efficiency”, “diversification” and “too big to fail” hypotheses, confirming that credit quality in the banking industry is mainly driven by profitability, banking supervision, high credit standards and strong investment strategies. The findings are relevant to bank managers, investors and bank regulators, in formulating effective credit policies and investment strategies.

Modeling credit risk in credit unions using survival analysis

PurposeThe purpose of this paper is to investigate proprietary data from customers of a Southern Louisiana credit union. It analyzes the factors that contribute to an accelerated failure time (AFT) using information from customers’ credit applications as well as information provided in their credit report.Design/methodology/approachThis paper investigates the factors that affect credit risk using survival analysis by employing two primary models – the AFT model and the Cox proportional hazard (PH) model. While several studies employ the Cox PH model, few use the AFT model. However, this paper concludes that the AFT model has superior predictive qualities.FindingsThis paper finds that the factors specific to borrowers and local factors play an important role in the duration of a loan.Practical implicationsThis paper offers an easily interpretable model for determining the duration of a potential borrower. The marketing department of credit unions can then use this information to predict when a customer will default, thus allowing the credit union to intervene in a timely manner to prevent defaults. Further, the credit union can use this information to seek out customers who are less likely to default.Originality/valueThis study is different from the previous research due to its focus on credit unions, which have distinct characteristics. Compared to similar lending institutions, the charter of the credit union does not allow management to sell off loans to other investors.

Research on CDS pricing model with endogenous recovery rate

Research on CDS pricing model with endogenous recovery rate