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

Abstract

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.

Prevention Effectiveness of Non-Performing Financing in the Indonesian Islamic Bank

“…Santoso et al (2019) state that the strategy formulation for handling non-performing financing divide into five levels such as goal, economic sector, factor, actor, and programs. Koju et al (2018) suggest that high profitability and high income will lower the default risk.…”

The determinants of banks' credit risk: Review of the literature and future research agenda

“…Tier 1 Capital + Tier 2 Capital Risk Weighted assets (Ghosh, 2017;Rime, 2001;Shrieves & Dahl, 1992) Equity Total Assets (Koju, Koju, & Wang, 2018;Us, 2017) Bank size Natural log of total assets (Albaity, Mallek, & Noman, 2019;Zhang et al, 2016) Bank efficiency…”

“…Operating expenses Operating income (Espinoza & Prasad, 2010;Koju et al, 2018;Louzis et al, 2012;Ozili, 2019;Shehzad et al, 2010) Bank performance ROE = Net income Total equity (Louzis et al, 2012;Makri et al, 2014) ROA = Net income Total assets (Lafuente, Vaillant, & Vendrell-Herrero, 2019;Radivojevic & Jovovic, 2017;Vithessonthi, 2016) Loan growth Percentage growth of total loans between two consecutive years (Peric & Konjusak, 2017;Salas & Saurina, 2002;Vithessonthi, 2016) Bank diversification…”

Moderating Effect of Capital Outflow Monitoring Management (COMM) on Credit Risk and Loan Performance

“…Onuko, Munir Muganda, & Musiega (2015) states that if the borrower can provide the information needed when applying for a loan, the lender (the bank) can make the best decision regarding the loan application. When credit risk decreases, the level of NPL (ratio of nonperforming loans) decreases so that credit quality is maintained (Koju, Koju, & Wang, 2018). Likewise, if a bank can make additional efforts to ensure all information needed during the credit assessment process, the credit risk associated with the prospective debtor can be maintained (García, Giménez, & Guijarro, 2012).…”