Determinants of Credit Risk: Empirical Evidence from Southeast Asian Banks

Abstract

Purpose: This study examines the determinants of credit risk in banks across Southeast Asia, with a primary focus on bank-specific factors such as credit growth, bank size, capital structure, and operational efficiency, while also considering the role of macroeconomic conditions and major economic shocks, including the 2007–2009 global financial crisis and the COVID-19 pandemic.
Design/methodology/approach: The study employs an unbalanced panel dataset of 185 banks across Southeast Asia from 2000 to 2022 and applies a two-way clustered fixed-effects regression model to estimate the impact of key determinants on credit risk.
Findings: Credit growth, bank size, capital ratios, operational efficiency, M2 money supply growth, and economic growth exhibit negative effects on credit risk. In contrast, income diversification and inflation are found to increase non-performing loans. The Global Financial Crisis significantly heightened credit risk, whereas no clear empirical evidence is observed regarding the impact of COVID-19 on bank credit risk.
Originality value: This study provides updated and comprehensive empirical evidence on the drivers of credit risk in Southeast Asian banking over more than two decades, including crisis periods. The findings offer important policy implications for strengthening credit risk management and enhancing financial stability in Vietnamese commercial banks.