Navigating risk and growth: how loan quality and credit growth shape bank profitability in ASEAN commercial banks
Keywords:
ASEAN countries, Credit risk, Credit growth, Bank-specific factorsAbstract
ASEAN is a dynamic economic region that contributes significantly to global growth but faces challenges such as high levels of non-performing loans (NPLs) in its banking sector. This study analyzes the impact of bank credit management and bank-specific factors on ASEAN commercial banks' financial performance. This study uses secondary data from commercial banks in ASEAN countries over 10 years (2010-2023). Fixed Effects and Random Effects methods and OLS are applied to estimate the coefficients and assess their robustness tests. The results show that credit risk negatively and significantly affects bank performance, particularly Return on Assets (ROA) and Return on Equity (ROE). Meanwhile, credit growth positively and significantly influences ROA and ROE. Factors from bank-specific variables show mixed results on the financial performance of ASEAN commercial banks. Furthermore, the study finds that the previous financial crisis had a lingering negative impact on bank performance, particularly on ROA and ROE, underscoring banks' vulnerability to economic shocks. This study recommends that ASEAN policymakers create a robust financial environment by implementing monetary policy that regulates interest rates to reduce high NPL ratios through a better monitoring system. This study contributes to the literature by focusing on ASEAN commercial banks, providing region-specific insights into the interaction between bank credit management and financial performance. This study uniquely combines accounting-based and market-based measures, comprehensively evaluating banking performance in ASEAN.
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