Factors affecting bank credit risk: An empirical insight

Credit risk impedes the growth of bank’s performance and position which is largely influenced by a number of factors that should be taken consideration and minimized. The objective of the study is to illustrate the inclusion of valid causes of selecting best model with regard to statistical significance. The study conducted on panel data consisting of 322 observations with 22 commercial banks and 15 consecutive years. The study finds that profitability, capital and bank size are inversely associated with bank credit risk whereas net interest margin and inefficiency have positive effect. Moreover consecutive addition of each variable is in charge of constructing the accurate model considering the variation and goodness of fit value in the respective model. However, no evidence is found in support of macroeconomic variables used in the model. Last not the least, the sensitivity of the model test argued in favor of baseline model which established the cause and effect relationship in a logical manner.
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Factors affecting bank credit risk: An empirical insight