DETERMINANTS OF CREDIT RISK: EMPIRICAL EVIDENCE FROM INDIAN COMMERCIAL BANKS

Title

DETERMINANTS OF CREDIT RISK: EMPIRICAL EVIDENCE FROM INDIAN COMMERCIAL BANKS

Creator

Antony T.M.; Suresh G.

Description

Credit risk is a significant factor affecting the financial stability of banks. Keeping the credit risk under control is essential to maintain a banks cash flow. This paper examines the various profitability, microeconomic and macroeconomic indicators that affect a banks credit risk. The study uses the dataset of 31 banks from 2012 to 2021 and employs a panel data modelling approach to account for any variations in risk-taking behavior. The results revealed a statistically significant negative relationship between return on equity and credit risk when nonperforming loans proxy credit risk. This finding was consistent across fixed effect, random effect, and pooled OLS methods, at 1 percent significance (P value < 0.00), indicating that the extent of credit risk decreases as profitability increases. It was further found that bank age and ownership type positively affect a banks credit risk, while factors such as bank size and operational efficiency negatively affect credit risk when nonperforming loans proxy credit risk. Further, macroeconomic variables showed that gross domestic product is positively associated with credit risk, while inflation negatively affects credit risk. Overall, the findings of this paper demonstrated that credit risk is affected by both micro and macroeconomic factors. The paper also addresses significant policy implications as it helps various stakeholders to examine the determinants of credit risk, make credit decisions, and ultimately lower their credit risk. Tisa Maria Antony, Suresh G., 2023.

Source

Banks and Bank Systems, Vol-18, No. 2, pp. 88-100.

Date

2023-01-01

Publisher

LLC CPC Business Perspectives

Subject

credit risk; fixed effect; loan loss provisions; nonperforming loans; random effect

Coverage

Antony T.M., School of Commerce, Finance and Accountancy, CHRIST (Deemed to be University), India; Suresh G., School of Commerce, Finance and Accountancy, CHRIST (Deemed to be University), India, Symbiosis Institute of Business Management, Symbiosis International (Deemed University), Bengaluru Campus, Pune, India

Rights

All Open Access; Gold Open Access

Relation

ISSN: 18167403

Format

Online

Language

English

Type

Article

Identifier

https://doi.org/10.21511/bbs.18(2).2023.08

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