Does country risk impact the banking sectors’ non-performing loans? Evidence from BRICS emerging economies

Abstract

This study aims to fill the gap in the literature by specifically investigating the impact of country risk on the credit risk of the banking sectors operating in Brazil, Russia, India, China, and South Africa (BRICS), emerging countries. More specifically, we explore whether the country-specific risks, namely financial, economic, and political risks significantly impact the BRICS banking sectors’ non-performing loans and also probe which risk has the most outstanding effect on credit risk. To do so, we perform panel data analysis using the quantile estimation approach covering the period 2004–2020. The empirical results reveal that the country risk significantly leads to increasing the banking sector’s credit risk and this effect is prominent in the banking sector of countries with a higher degree of non-performing loans (Q.25 = − 0.105, Q.50 = − 0.131, Q.75 = − 0.153, Q.95 = − 0.175). Furthermore, the results underscore that an emerging country’s political, economic, and financial instabilities are strongly associated with increasing the banking sector’s credit risk and a rise in political risk in particular has the most positive prominent impact on the banking sector of countries with a higher degree of non-performing loans (Q.25 = − 0.122, Q.50 = − 0.141, Q.75 = − 0.163, Q.95 = − 0.172). Moreover, the results suggest that, in addition to the banking sector-specific determinants, credit risk is significantly impacted by the financial market development, lending interest rate, and global risk. The results are robust and have significant policy suggestions for many policymakers, bank executives, researchers, and analysts.

The Role of Country Governance in Achieving the Banking Sector’s Sustainability in Vulnerable Environments: New Insight from Emerging Economies

“…The period of study was chosen due to data accessibility and to avert missing observations. In addition, this study followed the findings of the majority of studies, such as [12,17,21,25], and selected the variables presented in Table 2. This study gathered the annual data for the internal and external variables from the websites of the Central Bank and World Bank database.…”

“…Refs. [10][11][12] concluded that an increase in income diversification could decrease CR. Moreover, the works by [13][14][15] revealed that size positively impacts banks' CR.…”

“…In addition, prior works highlighted that domestic credit [22] and exchange rate [23,24] positively impact CR. Moreover, several works [12,25] found that rising political risk (e.g., by increasing corruption) significantly exacerbates CR.…”

Financial development and economic complexity: The role of country stability

“…Political risk in particular has the most significant positive impact on the banking sector of nations with higher levels of non‐performing loans. Political, economic and financial instability in emerging countries is strongly linked to increasing credit risk in the banking sector (Saliba et al., 2023). Instability in government restricts productivity, discourages investments in human capital and controls business investments, all of which are barriers to economic progress (Darby et al., 2004).…”

The Role of Resource Acquisition in Achieving Sustainable Competitive Performance for SMEs in an Emerging Market: A Moderated Mediation Analysis

“…Future studies could explore flat structures, networks, or joint ventures as mechanisms in the RA-SCP relationship. Fourth, it would be noteworthy for further studies to consider some other factors, such as innovation [92,93], COVID-19 [94], blockchain technology [95], competitive intensity and environmental insecurity [96], entrepreneurial orientation [97], governance [98], and economic and environmental policies [99,100] in the testing model. Informed Consent Statement: Informed consent was obtained from all subjects involved in the study.…”