Bank Credit Risk Research Articles

The impact of monetary policy and credit risk on bank credit behavior: An analysis of banks listed on the Indonesian stock exchange

The study investigates macroeconomic and bank-specific determinants of credit for commercial banks from 2010Q1–2022.Q4 in Indonesia. The banking credit is divided into an investment, working capital, and consumption credits. The study aims to address a gap in the literature since most prior studies are concentrated on developed markets. A system generalized method of moment (GMM) estimator is employed to investigate the impact of central bank rates and credit risk on credit. Dynamic-GMM estimations find that the central bank rate has a negative impact on the three types of credits. Meanwhile, non-performing loans positively impact investment and working capital credits but negatively affect consumption credit. The interaction between central bank rate and non-performing loans negatively impacts investment and working capital credits but positively affects consumption credit. This study provides managers and policymakers with timely information regarding bank credit drivers, encouraging management to take necessary measures, and policymakers may consider the importance of macroeconomic conditions while creating a bank lending policy. Similarly, it informs potential investors on how to evaluate the data when choosing a better investment option.

Banking system stability in the MENA region: the impact of market power and capital requirements on banks’ risk-taking behavior

PurposeThis paper aims to investigate the impact of capital requirements and bank competition on banks' risk-taking behavior in the Middle East and North Africa (MENA) region.Design/methodology/approachThe study combines both descriptive and analytical approaches. It considers panel data sets and adopts panel data econometric techniques like fixed effects/random effects and generalized method of moments estimator.FindingsRegulatory capital and market competition have different effects according to the bank’s type (Islamic or conventional). The results show that the capital adequacy ratio has a significant impact on the credit risk of conventional banks (CBs) while this effect is irrelevant for Islamic banks (IBs). However, market competition plays a significant role in shaping risk-taking behavior of Islamic banking institutions. Our results indicate that banks with strong market power may pursue risky strategies in the face of increased regulatory pressure (e.g. increased minimum capital requirements). The results were robust to alternative profitability measures and endogeneity checks.Research limitations/implicationsThe most important limitation is the lack of data for some banks and years, and this paper had to exclude some variables because of missing observations. The second limitation concerns the number of IBs in the sample. However, this can be overcome by including more countries from MENA and other regions where Islamic banking is a growing phenomenon.Practical implicationsOur findings call for a change in Islamic banking’s traditional business model based on the prohibition of interest. The analysis indicates that market concentration moderates the association between capital requirements and the insolvency risk of IBs but not CBs. Therefore, regulatory authorities concerned with improving financial stability in the MENA region should set up their policies differently depending on the level of banking market concentration. Finally, bank managers are requested to apply a more disciplined approach to their lending decisions and build sufficient capital conservation buffers to limit the impact of downside risk from the depletion of capital buffers during the pandemic.Originality/valueThis study addresses banks’ risk-taking behavior and stability in the MENA region, which includes banks of different types (Islamic and conventional). This paper also contributes to the literature on bank stability by identifying the most critical factors that affect bank risk and stability in the MENA region, which can be relevant in the context of the new global (COVID-19) crisis.

The Influence of Internal and Macroeconomic Factors on Credit Risk of Conventional Banks Listed on the IDX

The purpose of this study is to explore the main determinants of non-performing bank loans in emerging markets, especially in Indonesia. The independent variables in this study are bank size, capital adequacy ratio, bank performance, credit growth, bank inefficiency, concentration of ownership, bank diversification, GDP growth, inflation, unemployment, and concentration. While the dependent variable is non-performing credit risk. This research was conducted by collecting data from 37 banks listed on the Indonesia Stock Exchange over a period of 4 years (2018-2021) and using a panel data regression model in its testing.The results of the research conducted explained that the capital adequacy ratio, credit growth, concentration of ownership, gross domestic product growth, inflation, unemployment, and competition have no significant effect on non-performing loans. The variables of bank size, bank performance, bank inefficiency, and bank diversification are known to have a significant negative effect on bad loans. The implication of the research that has been carried out is to provide direction for financial managers regarding the consideration of internal and macroeconomic factors that affect the risk of problem loans and also regarding the diversification of bank income to reduce the risk of non-performing loans. For investors, investors should choose a bank that has high operating costs, large assets, high performance, and diversified income other than high interest.

The Influence of Internal Performance and Macroeconomic Conditions on Regional Development Bank Credit Risk in Indonesia Period 2017-2021

This study aims to identify the effect of internal performance and macroeconomic conditions on the credit risk of Regional Development Banks in Indonesia in the 2017-2021 period. This research is a quantitative research using statistical data. The population used in this research is Regional Development Banks in Indonesia from 2017 to 2021. The sample used in this research is from 24 Regional Development Banks in Indonesia that have been registered with the Financial Services Authority (OJK). The data for this research were obtained from library sources available at the Financial Services Authority, the Central Bureau of Statistics and Bank Indonesia. The research data was processed using the Error Correction Model (ERM) with Microsoft Excel and Eviews 10 software. The results of this study indicate that the Credit Growth Ratio has a positive effect on NPLs both in the long term and in the short term. CKPN receipts have a positive effect on NPL both in the long term and in the short term, BOPO has a negative effect on NPL both in the long term and in the short term, inflation has a positive effect on NPL both in the long term and in the short term, GRDP has a negative effect on NPL both in the long term and short term.

Determinants of Green Credit and Their Influence on Banking Profitability in Indonesia

Green finance involves efforts to internalize environmental externalities and adjust risk perceptions to encourage environmentally friendly investments and reduce those that are harmful to the environment. One form of green financial support is the provision of green credit by banks. This research aims to test the effect of green credit on bank profitability, and test the effect of capital adequacy, operational efficiency, credit risk and bank size on bank profitability. This research also examines the influence of capital adequacy, operational efficiency, credit risk and bank size on green credit. The population in this study are banks operating in Indonesia with a sample of all banks that have a commitment to green credit. To test the hypothesis, use panel data regression analysis. After conducting a model test, the best model was obtained, namely the fixed effect model. The results of research using the fixed effect model show that green credit in Indonesia is not influenced by bank capital adequacy, bank operational efficiency, bank liquidity, bank credit risk, and bank size. However, green credit has a significant positive effect on bank profitability in Indonesia. Another result is capital adequacy, which has a positive effect on profitability, while operational efficiency and bank size have a significant and negative effect on profitability, while credit risk has no effect on profitability.

Impact of Macro and Micro Factors on Provision for Credit Risks of Commercial Banks in Vietnam: Approach on Python Programming Platform

This study uses LGBM Regressor (Light Gradient Boosting Machine Regressor) algorithm in machine learning on python platform along with SHAP (Shapley Additive exPlanation) technique to extract information from machine learning model to evaluate the macro and micro factors affecting the provision for credit risks at commercial banks in Vietnam. Data was collected from 30 commercial banks in Vietnam from 2008 to 2020. Research results show that profitability, size, bad debt, credit balance, capital adequacy ratio, economic growth and unemployment rate have an impact on the provision for credit risk. From there, the article proposes some policy implications to limit credit risk at commercial banks in Vietnam.

Bank credit, inflation, and default risks over an infinite horizon

The financial intermediation wedge of the banking sector used to co-move positively with the federal funds rate, but the post-GFC era saw a disconnect between them. We develop a flexible price dynamic general equilibrium with banks’ liquidity creation to offer an explanation. In a corridor system, the financial wedge and policy rate are shown to co-move, and the pass-through of monetary policy onto both inflation and output obtains. However, the post-GFC floor system obviates the need for the financial wedge to cover the cost of obtaining reserves, so the wedge and the policy rate indeed disconnect in equilibrium; furthermore, we show that the disconnect obstructs monetary expansions from generating inflation. In this environment, tightening bank capital requirement leads to disinflationary pressure. Money-financed fiscal expansions that subsidise non-bank sectors’ borrowing costs improve output and reduce default risks but increase inflation. The model uses banks’ liquidity creation via credit extension to provide a rationale for both the pre-pandemic disinflation and the post-pandemic inflation. The results hold both on the dynamic paths and in the steady state, and the role of money enlarges the Taylor rule determinacy region.

A Survey of Banks in Ghana's Credit Risk Management Practices

In recent times, banks and other financial institutions that lend money to customers have placed a high priority on credit risk management. To manage credit risk, banks employ customer evaluation systems, loan size restrictions, credit checks, flexible loan repayment plans, and fines Hence, the present study focuses on the credit risk management practices used in banks, to identify the internal control measures used in mitigating credit risk in banks and to examine the challenges faced in implementing credit risk management practices. The Ordinal Logistic Regression(OLR) was used to identify the relationships between the response variables, e.g. management support, credit risk identification, internal control measuers and credit risk management surveys. The independent variables were calculated on an ordered, 5-point Linear scale for the responding participants. In this study, log lit function was chosen, that demonstrated the model appropriateness. One of the main finding is that in banks, credit management risk is reduced when managers implement and adhere to responsible credit risk management procedures, viable client appraisal credit management system, regular credit checks, flexible credit repayment systems to encourage and improve loan repayment, were highly significant with the respondents’ positive initiative amidst credit risk management practices in banks.

Role of fintech in credit risk management: an analysis of Islamic banks in Indonesia, Malaysia, UAE and Pakistan

PurposeThe purpose of this study aims to examine the effect of fintech on pre- and post-financing credit risks faced by the Islamic banks.Design/methodology/approachThis research uses primary data for fintech awareness and adoption and secondary data of various financial and economic variables from 2009 to 2021. It uses baseline regression to identify moderation of fintech controlling gross domestic products, size, return on assets and leverage. The findings are confirmed using robustness against key variable bias. It also uses a dynamic panel two-stage generalized method of moments for endogeneity.FindingsThe study finds that the fintech awareness and adoption are not the same across all Islamic countries. The Asia Pacific region is far ahead of the other two regions where Indonesia is ahead in terms of fintech awareness and adoption, and Malaysia is ahead in terms of reaping its benefits in credit risk management. Fintech affects prefinancing credit risk significantly more than postfinancing credit risk. Also, the study finds that Islamic banks suffer from the problem of “Adverse selection under Shariah compliance.”Practical implicationsThis research invites regulators to introduce fintech in Islamic banks on war footing. Similar studies can be conducted on the role of other risks such as operational and market risks. Fintech will also help in improving the risk profile and stability of Islamic banks against systemic risks and financial crises.Originality/valueThis research has variety of originalities. First, it is the pioneering study that addresses the effect of fintech pre- and post-financing credit risks in Islamic banks. Second, it identifies “Adverse selection under Shariah compliance” for Islamic banks. Third, it helps identify how fintech can be useful in reducing credit risk that will help in reducing capital charge for regulatory capital.

Credit Risk Management of Commercial Banks in China

The banking sector has experienced significant growth since the reform and opening up and has also become aware of the transition from a single national banking system to the commercial banking system required by the market economy. However, the ability of China's commercial banks to develop further has been constrained by both internal and external forces. Due to the high non-performing assets and inadequate risk management in China's commercial banking sector, at the same time. It also hinders the development of the financial industry to some extent. Analyze the performance and factors that contribute to credit risk for China's commercial banks, as well as the current state of affairs and issues with credit risk management, in order to try and find a solution to the issue from the viewpoints of the financial system and credit management techniques. The main method used is to use theoretical analysis to discuss the problem of credit risk management, integrate theory with practice, and hope to provide reference for the improvement of bank credit risk management by systematically making in-depth and simple research on the credit risk situation of China's commercial banks.

Analysis of credit risk, liquidity and profitability of the Trade Bank of Iraq for the period (2012-2021)

Analysis of credit risk, liquidity and profitability of the Trade Bank of Iraq for the period (2012-2021)

Do Interest Rate Policy and Liquidity Effect on Banking Credit Risk in Indonesia?

Lending plays a vital role for banks as a source of income from deposits or interest paid by debtors. This study aims to analyze the effect of policy interest rates and liquidity from the money supply on bank credit risk in Indonesia in the short and long term. This study uses the Autoregressive Distributed Lag method and the Granger Causality test as analytical tools. The data used are policy interest rates, total money supply, and total non-performing loans. The data period under study is 2017-2022. The study results show that in the short term, policy interest rates and the money supply negatively affect bank credit risk in Indonesia. However, in the long term, policy interest rates have a negative effect, and the money supply does not affect bank credit risk in Indonesia. Policy interest rates have a one-way causality relationship with bank credit risk. Meanwhile, bank credit risk has a one-way causality relationship to the money supply. This condition represents that policy interest rates can reduce bank credit risk in Indonesia. The Bank of Indonesia, as the monetary authority, needs to pay attention to fluctuations in policy interest rates and mitigate excess money supply so that credit risk does not increase.JEL Classification: F43, O11, P34How to Cite:Amalia, S. Q., & Suriani, S. (2023). Do Interest Rate Policy and Liquidity Affect Banking Credit Risk in Indonesia?. Signifikan: Jurnal Ilmu Ekonomi, 12(1), 145-160. https://doi.org/10.15408/sjie.v12i1.27119.

BANK CAPITAL AND BANK PROFITABILITY OF VIETNAM COMMERCIAL BANKS

The commercial banking system plays an important role in providing capital to businesses and other organizations, so bank capital receives great attention from many different subjects in the economy. This position is even more crucial for Vietnam, a developing country because the corporate bond market is relatively small in comparison to the size of the economy. As a result, commercial bank business efficiency is a problem that requires attention since it has a direct impact on the efficiency with which capital is provided to firms, as well as the market's stability. The research study concerning the effect of bank capital on bank profitability was conducted using data gathered from 22 Vietnam commercial banks from 2011 to 2020, using Pooled OLS, FEM, REM, and GMM methodologies. The results show that bank capital has a negative relationship with profitability. Bank profitability is also positively affected by bank size, credit risk, credit growth, and capital adequacy ratio. This study offers a new understanding of the relationship between bank capital, and bank profitability in Vietnam and proposed implications for Vietnam commercial banks' governance solutions, a country whose financial system depends mainly on banks, has transformed its capital management direction according to Basel 2 guidelines and is preparing for Basel 3 standards.

Pricing of Non-financial Assets Considering Bank Credit Risk

This paper selects the data of Shanghai and Shenzhen A-share listed companies and 12 commercial banks from January 2010 to December 2020, constructs A bank factor representing the level of bank credit risk and introduces it into the Fama-French three-factor model, and theoretically establishes a four-factor asset pricing model considering bank credit risk. The empirical test results show that: (1) In the non-financial market, the bank factor quantified by the level of bank credit risk plays a good role in explaining individual stocks, and can be used as the influence factor of asset pricing in the non-financial industry; (2) The addition of bank factor improves the comprehensive explanatory ability of market factor, size factor and book-to-market ratio factor, and reasonably expands and revises the Fama-French three-factor model theoretically. The results of this paper improve the pricing efficiency of the Fama-French three-factor model based on bank credit risk, and enrich and perfect the asset pricing theory to a certain extent.

Impact of the development of FinTech by commercial banks on bank credit risk

Impact of the development of FinTech by commercial banks on bank credit risk

DAMPAK INKLUSI KEUANGAN TERHADAP RISIKO KREDIT PADA PERBANKAN DIGITAL DI INDONESIA PERIODE TAHUN 2015-2021

One of the most significant risks for banks, including digital banks, is credit risk. Bank credit risk can be influenced by a number of things, one of which is increasing financial inclusion. Then there is the prime lending rate which is used as a variable control in this study. The purpose of this study is to identify and analyze the impact of financial inclusion on credit risk in Indonesian digital banks. This study employs panel data from four Indonesian digital banks from 2015 to 2021. Panel data regression is the regression model that was used, and the hypothesis was tested with the t test, the F test, and the coefficient of determination. Financial inclusion has a positive and insignificant effect on digital bank credit risk in Indonesia on the accessibility dimension, a negative and significant effect on the usage dimension, and for prime lending rates it has a positive and insignificant effect on digital bank credit risk in Indonesia. This indicates that digital banks in Indonesia can reduce their credit risk by utilizing financial services. So that increasing financial inclusion through the use of financial services must be further improved while still paying attention to the prudence principle.

The Nexus of Competition, Loan Quality, and Ownership Structure for Risk-Taking Behaviour

“The core purpose is to explore the relationship between competition, loan quality, ownership structure, and risk for MENA economies.” In addition, this study examines the financial stability level of dual banking and explores the bidirectional causality of competition and risk concerning the impact of ownership structure. This study uses 748 observations from 2011 to 2020 in MENA countries. The Generalized Method of Moments (GMM) is an econometric technique used to estimate the parameters of a statistical model. The study findings indicate a negative (positive) relationship between MENA bank competition and risk (financial stability). It indicates that lower bank competition reduces bank credit risk and increases financial stability in MENA countries. Regarding ownership structure, Islamic banks display a stronger position in MENA economies than that of Commercial banks and Specialized Government Institutions. In contrast, specialized government institutions are riskier than commercial banks and Islamic banks. Loan quality shows the two-way causality between the degree to which banks compete and the quality of their loans to customers in the MENA markets. This study sets itself apart from other studies by creating a new segmented literature review portion. Finally, a significant policy implication is provided for academics, researchers, and policymakers interested in applying these findings.

Impact of Finacial Inclusion on Banks Credit Risk in Afghanistan: Empirical Evidence from Afghanistan s Banking Sector

This paper investigates the impact of financial inclusion on credit risk in nine commercial banks in Afghanistan, covering the data of 12 years from 2010-2021. Financial inclusion has been measured by the number of loan accounts, number of deposits, number of branches, and number of ATMs. Moreover, other bank-specific and macroeconomic variables are used as control variables like CAR, AGR, LTD, INT, INF, and GDP. This study applied panel data, random regression to test the hypothesis, and a generalized method of moment (GMM) regression model to test the effect of financial inclusion on credit risk. This study’s findings show that the number of loans on credit risk is positive and significant. However, the impact of the number of deposits on credit risk is affirmative but insignificant. On the other hand, the impact of the number of branches on credit risk is positive and significant, while the effect of the number of ATMs is significant and negative. Among the control variables, the finding of this paper indicates that CAR, AGR, GDP, and LTD have a negative link with credit risk and considerably impact decreasing Credit risk. INR and INF positively link with credit risk, but their impact is insignificant. This research will contribute to the DAB and other government-involved policymakers to use the valuable findings of this study while developing the future financial inclusion strategy in cooperation with bank managers to expand financial inclusion in line with commercial bank targets.

Macroeconomic Factors of Consumer Loan Credit Risk in Central and Eastern European Countries

In the scientific literature, there is a lack of a systematic approach to credit risk factors. In addition, insufficient attention is still paid to analysing the macroeconomic factors of consumer loan credit risk. Thus, this research aims to evaluate the macroeconomic factors of consumer loan credit risk in Central and Eastern European countries’ banking systems. The findings of the study can be formulated as follows. After analysing scientific literature on credit risk factors, an improved and detailed (at five different levels) classification of factors influencing banking credit risk is proposed. This classification can be beneficial for more enhanced analysis of the factors influencing banking credit risk for the whole loan portfolio as well as for different types of loans, e.g., consumer loans. For quantitative evaluation of the impact of macroeconomic factors on consumer loan credit risk, the methods of panel data analysis and bivariate and multiple regressions are employed. Eleven CEE countries in the period from 2008 to 2020 are analysed. The results revealed that the aggregate of general macroeconomic condition factors is negatively related to consumer loan NPLs. Moreover, the economic growth, stock market, foreign exchange market, and institutional environment factors proved to be risk-decreasing, while credit market and bond market factors had a risk-increasing impact. The results of this research might help financial institutions manage credit risk more efficiently and also might be relevant to governments and central banks when selecting and applying fiscal and monetary policy measures. This study also makes policy recommendations.

The effect of the disposal of non-performing loans on interbank liquidity risk in China: A cash flow network-based analysis

The scale of non-performing loans (NPLs) directly affects the credit risk of commercial banks, and a large range of loan defaults will also lead to the liquidity crisis. Furthermore, liquidity risk will transmit to other banks through the interbank network. A reasonable disposal mode of NPLs is not only of great significance to commercial banks themselves, but is also related to the liquidity risk of the whole banking system. This paper fully considers the characteristics of China's banking system and constructs a dynamic bank-centered multi-agent model (DBMM) to explore how the disposal of non-performing loans (NPLs) affects interbank liquidity risk based on the interbank cash flow network. The results indicate that the increase in the number of small and medium-sized commercial banks improve the whole banking system stability, however, the increase in NPLs from low-income debtors increases the liquidity risk. The disposal of NPLs plays an important role in maintaining the stability of interbank networks, and the stock-plus-loan mode can more effectively alleviate liquidity risk in China than the entrusted settlement mode. Liquidation repayment ratio of commercial banks has the most significant effect on the interbank network in China, and adjusting this proportion is an effective method to prevent liquidity risk. Moreover, compared with small commercial banks, large commercial banks have a stronger ability to resist liquidity risk, as they are established with capital injection by the government in China.