An In-Depth Analysis of Credit Risk: Taking Proactive Measures to Tackle Non-Performing Loans in the Banking Sector
Article Sidebar
Published:
May 31, 2024
Keywords:
banking, credit risk, non performing loans, management
Section
Economy
Statistics Article
Article View : 35 Times
Main Article Content
Abstract
Banking distributes savings to borrowers, boosting economic activity. Recent Bank Indonesia (BI) data reveals a troubling trend of falling credit quality and growing NPLs in the industry. The global financial crisis, market competitiveness, and lax lending laws impact this. Banks' reluctance to adjust interest rates during economic uncertainty has increased businesses' repayment responsibilities despite decreasing income. Non-performing loans have grown unintentionally as regulators lower collateral and deposit restrictions to improve credit distribution. In this case, proactive credit restructuring is advocated. Reduce non-performing loans and stabilise banks. Banks use credit restructuring to help distressed debtors fulfil their obligations while safeguarding loan loss reserves. Effective credit management decreases loan risks and involves stakeholders. Qualitative descriptive study examines credit management techniques and challenging loan frequency. The results emphasise the necessity for strict credit standards, strong monitoring systems, and resolutions including restructuring loans and selling assets to reduce non-performing loan risks. Regulators, banks, and other stakeholders must collaborate to address NPLs and stabilise finances. Active credit management may assist banks manage NPLs and maintain economic development.
Downloads
Download data is not yet available.
Article Details
How to Cite
Wijoyo, T. A. . and Apriyani, E. (2024) “An In-Depth Analysis of Credit Risk: Taking Proactive Measures to Tackle Non-Performing Loans in the Banking Sector”, Jurnal Mantik, 8(1), pp. 361-368. doi: 10.35335/mantik.v8i1.5072.
References
Abbas, F. (2021). How Do Capital Ratios Affect Bank Risk-Taking: New Evidence From the United States. SAGE Open, 11(1). https://doi.org/10.1177/2158244020979678
Acheampong, A. (2021). Does soft information determine credit risk? Text-based evidence from European banks. Journal of International Financial Markets, Institutions and Money, 75(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.intfin.2021.101303
Adusei, M. (2022). Credit information sharing and non-performing loans: The moderating role of creditor rights protection. International Journal of Finance and Economics, 27(4), 4756–4769. https://doi.org/10.1002/ijfe.2398
Agyabeng-Mensah, Y. (2020). Exploring financial performance and green logistics management practices: Examining the mediating influences of market, environmental and social performances. Journal of Cleaner Production, 258(Query date: 2024-02-17 10:42:36). https://doi.org/10.1016/j.jclepro.2020.120613
Ahmed, S. (2021). The Impact of Bank Specific and Macro-Economic Factors on Non-Performing Loans in the Banking Sector: Evidence from an Emerging Economy. Journal of Risk and Financial Management, 14(5). https://doi.org/10.3390/jrfm14050217
Ali, K. (2023). Governance perspective and the effect of economic policy uncertainty on financial stability: Evidence from developed and developing economies. Economic Change and Restructuring, 56(Query date: 2024-04-02 16:46:38), 1971–2002. https://doi.org/10.1007/s10644-023-09497-6
Al-Qudah, A. A. (2023). The impact of green lending on credit risk: Evidence from UAE’s banks. Environmental Science and Pollution Research, 30(22), 61381–61393. https://doi.org/10.1007/s11356-021-18224-5
Altinay, L., & Taheri, B. (2019). Emerging themes and theories in the sharing economy: A critical note for hospitality and tourism. In International Journal of Contemporary Hospitality Management (Vol. 31, Issue 1). https://doi.org/10.1108/IJCHM-02-2018-0171
Arham, N. (2020). Impact of macroeconomic cyclical indicators and country governance on bank non-performing loans in Emerging Asia. Eurasian Economic Review, 10(4), 707–726. https://doi.org/10.1007/s40822-020-00156-z
Ari, A. (2021). The dynamics of non-performing loans during banking crises: A new database with post-COVID-19 implications. Journal of Banking and Finance, 133(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.jbankfin.2021.106140
Asiama, R. K. (2019). Non-performing loans and monetary policy dynamics in Ghana. African Journal of Economic and Management Studies, 10(2), 169–184. https://doi.org/10.1108/AJEMS-04-2018-0103
Banna, H. (2021). Impact of digital financial inclusion on ASEAN banking stability: Implications for the post-Covid-19 era. Studies in Economics and Finance, 38(2), 504–523. https://doi.org/10.1108/SEF-09-2020-0388
Beck, T. (2022). Have banks caught corona? Effects of COVID on lending in the U.S. Journal of Corporate Finance, 72(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.jcorpfin.2022.102160
Bellotti, A. (2021). Forecasting recovery rates on non-performing loans with machine learning. International Journal of Forecasting, 37(1), 428–444. https://doi.org/10.1016/j.ijforecast.2020.06.009
Bitar, M. (2022). A note on regulatory responses to COVID-19 pandemic: Balancing banks’ solvency and contribution to recovery. Journal of Financial Stability, 60(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.jfs.2022.101009
Boumparis, P. (2019). Non-performing loans and sovereign credit ratings. International Review of Financial Analysis, 64(Query date: 2024-04-02 16:46:38), 301–314. https://doi.org/10.1016/j.irfa.2019.06.002
Boussemart, J. P. (2019). Decomposing banking performance into economic and credit risk efficiencies. European Journal of Operational Research, 277(2), 719–726. https://doi.org/10.1016/j.ejor.2019.03.006
Chen, B. (2022). Fintech and Financial Risks of Systemically Important Commercial Banks in China: An Inverted U-Shaped Relationship. Sustainability (Switzerland), 14(10). https://doi.org/10.3390/su14105912
Chortareas, G. (2020). Credit risk and the business cycle: What do we know? International Review of Financial Analysis, 67(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.irfa.2019.101421
Corbae, D. (2021). Capital Buffers in a Quantitative Model of Banking Industry Dynamics. Econometrica, 89(6), 2975–3023. https://doi.org/10.3982/ECTA16930
D’Amato, A. (2019). Bank institutional setting and risk-taking: The missing role of directors’ education and turnover. Corporate Governance (Bingley), 19(4), 774–805. https://doi.org/10.1108/CG-01-2019-0013
Dao, L. K. O. (2020). Factors affecting non-performing loans of commercial banks: The role of bank performance and credit growth. Banks and Bank Systems, 15(3), 44–54. https://doi.org/10.21511/bbs.15(3).2020.05
Dashottar, S. (2021). Corporate banking—Risk management, regulatory and reporting framework in India: A Blockchain application-based approach. Journal of Banking Regulation, 22(1), 39–51. https://doi.org/10.1057/s41261-020-00127-z
Grigoli, F. (2018). Macro-financial linkages and heterogeneous non-performing loans projections: An application to Ecuador. Journal of Banking and Finance, 97(Query date: 2024-04-02 16:46:38), 130–141. https://doi.org/10.1016/j.jbankfin.2018.09.023
Hardiyanti, S. E. (2021). The case of COVID-19 impact on the level of non-performing loans of conventional commercial banks in Indonesia. Banks and Bank Systems, 16(1), 62–68. https://doi.org/10.21511/bbs.16(1).2021.06
Horobet, A. (2021). Determinants of Bank Profitability in CEE Countries: Evidence from GMM Panel Data Estimates. Journal of Risk and Financial Management, 14(7). https://doi.org/10.3390/jrfm14070307
Hoshi, T. (2023). Zombies, again? The COVID-19 business support programs in Japan. Journal of Banking and Finance, 147(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.jbankfin.2022.106421
Karadima, M. (2021). Economic policy uncertainty and non-performing loans: The moderating role of bank concentration. Finance Research Letters, 38(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.frl.2020.101458
Kartal, M. T. (2023). Nexus between non-performing loans and economic growth in emerging countries: Evidence from Turkey with wavelet coherence approach. International Journal of Finance and Economics, 28(2), 1250–1260. https://doi.org/10.1002/ijfe.2474
Kryzanowski, L. (2023). Effect of COVID-19 on non-performing loans in China. Finance Research Letters, 52(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.frl.2022.103372
Kuzucu, N. (2019). What Drives Non-Performing Loans? Evidence from Emerging and Advanced Economies during Pre- and Post-Global Financial Crisis. Emerging Markets Finance and Trade, 55(8), 1694–1708. https://doi.org/10.1080/1540496X.2018.1547877
Le, C. (2022). Bank efficiency in Vietnam: Do scale expansion strategies and non-performing loans matter? International Journal of Finance and Economics, 27(1), 822–843. https://doi.org/10.1002/ijfe.2179
Liu, L. (2020). Sustainable visual analysis for bank non-performing loans and government debt distress. Sustainability (Switzerland), 12(1). https://doi.org/10.3390/SU12010131
Tran, D. V. (2022). Banks’ financial soundness during the COVID-19 pandemic. Journal of Economics and Finance, Query date: 2024-04-02 16:46:38. https://doi.org/10.1007/s12197-022-09591-x
Xie, Z. (2022). Achieving Financial Sustainability through Revenue Diversification: A Green Pathway for Financial Institutions in Asia. Sustainability (Switzerland), 14(6). https://doi.org/10.3390/su14063512
Acheampong, A. (2021). Does soft information determine credit risk? Text-based evidence from European banks. Journal of International Financial Markets, Institutions and Money, 75(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.intfin.2021.101303
Adusei, M. (2022). Credit information sharing and non-performing loans: The moderating role of creditor rights protection. International Journal of Finance and Economics, 27(4), 4756–4769. https://doi.org/10.1002/ijfe.2398
Agyabeng-Mensah, Y. (2020). Exploring financial performance and green logistics management practices: Examining the mediating influences of market, environmental and social performances. Journal of Cleaner Production, 258(Query date: 2024-02-17 10:42:36). https://doi.org/10.1016/j.jclepro.2020.120613
Ahmed, S. (2021). The Impact of Bank Specific and Macro-Economic Factors on Non-Performing Loans in the Banking Sector: Evidence from an Emerging Economy. Journal of Risk and Financial Management, 14(5). https://doi.org/10.3390/jrfm14050217
Ali, K. (2023). Governance perspective and the effect of economic policy uncertainty on financial stability: Evidence from developed and developing economies. Economic Change and Restructuring, 56(Query date: 2024-04-02 16:46:38), 1971–2002. https://doi.org/10.1007/s10644-023-09497-6
Al-Qudah, A. A. (2023). The impact of green lending on credit risk: Evidence from UAE’s banks. Environmental Science and Pollution Research, 30(22), 61381–61393. https://doi.org/10.1007/s11356-021-18224-5
Altinay, L., & Taheri, B. (2019). Emerging themes and theories in the sharing economy: A critical note for hospitality and tourism. In International Journal of Contemporary Hospitality Management (Vol. 31, Issue 1). https://doi.org/10.1108/IJCHM-02-2018-0171
Arham, N. (2020). Impact of macroeconomic cyclical indicators and country governance on bank non-performing loans in Emerging Asia. Eurasian Economic Review, 10(4), 707–726. https://doi.org/10.1007/s40822-020-00156-z
Ari, A. (2021). The dynamics of non-performing loans during banking crises: A new database with post-COVID-19 implications. Journal of Banking and Finance, 133(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.jbankfin.2021.106140
Asiama, R. K. (2019). Non-performing loans and monetary policy dynamics in Ghana. African Journal of Economic and Management Studies, 10(2), 169–184. https://doi.org/10.1108/AJEMS-04-2018-0103
Banna, H. (2021). Impact of digital financial inclusion on ASEAN banking stability: Implications for the post-Covid-19 era. Studies in Economics and Finance, 38(2), 504–523. https://doi.org/10.1108/SEF-09-2020-0388
Beck, T. (2022). Have banks caught corona? Effects of COVID on lending in the U.S. Journal of Corporate Finance, 72(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.jcorpfin.2022.102160
Bellotti, A. (2021). Forecasting recovery rates on non-performing loans with machine learning. International Journal of Forecasting, 37(1), 428–444. https://doi.org/10.1016/j.ijforecast.2020.06.009
Bitar, M. (2022). A note on regulatory responses to COVID-19 pandemic: Balancing banks’ solvency and contribution to recovery. Journal of Financial Stability, 60(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.jfs.2022.101009
Boumparis, P. (2019). Non-performing loans and sovereign credit ratings. International Review of Financial Analysis, 64(Query date: 2024-04-02 16:46:38), 301–314. https://doi.org/10.1016/j.irfa.2019.06.002
Boussemart, J. P. (2019). Decomposing banking performance into economic and credit risk efficiencies. European Journal of Operational Research, 277(2), 719–726. https://doi.org/10.1016/j.ejor.2019.03.006
Chen, B. (2022). Fintech and Financial Risks of Systemically Important Commercial Banks in China: An Inverted U-Shaped Relationship. Sustainability (Switzerland), 14(10). https://doi.org/10.3390/su14105912
Chortareas, G. (2020). Credit risk and the business cycle: What do we know? International Review of Financial Analysis, 67(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.irfa.2019.101421
Corbae, D. (2021). Capital Buffers in a Quantitative Model of Banking Industry Dynamics. Econometrica, 89(6), 2975–3023. https://doi.org/10.3982/ECTA16930
D’Amato, A. (2019). Bank institutional setting and risk-taking: The missing role of directors’ education and turnover. Corporate Governance (Bingley), 19(4), 774–805. https://doi.org/10.1108/CG-01-2019-0013
Dao, L. K. O. (2020). Factors affecting non-performing loans of commercial banks: The role of bank performance and credit growth. Banks and Bank Systems, 15(3), 44–54. https://doi.org/10.21511/bbs.15(3).2020.05
Dashottar, S. (2021). Corporate banking—Risk management, regulatory and reporting framework in India: A Blockchain application-based approach. Journal of Banking Regulation, 22(1), 39–51. https://doi.org/10.1057/s41261-020-00127-z
Grigoli, F. (2018). Macro-financial linkages and heterogeneous non-performing loans projections: An application to Ecuador. Journal of Banking and Finance, 97(Query date: 2024-04-02 16:46:38), 130–141. https://doi.org/10.1016/j.jbankfin.2018.09.023
Hardiyanti, S. E. (2021). The case of COVID-19 impact on the level of non-performing loans of conventional commercial banks in Indonesia. Banks and Bank Systems, 16(1), 62–68. https://doi.org/10.21511/bbs.16(1).2021.06
Horobet, A. (2021). Determinants of Bank Profitability in CEE Countries: Evidence from GMM Panel Data Estimates. Journal of Risk and Financial Management, 14(7). https://doi.org/10.3390/jrfm14070307
Hoshi, T. (2023). Zombies, again? The COVID-19 business support programs in Japan. Journal of Banking and Finance, 147(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.jbankfin.2022.106421
Karadima, M. (2021). Economic policy uncertainty and non-performing loans: The moderating role of bank concentration. Finance Research Letters, 38(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.frl.2020.101458
Kartal, M. T. (2023). Nexus between non-performing loans and economic growth in emerging countries: Evidence from Turkey with wavelet coherence approach. International Journal of Finance and Economics, 28(2), 1250–1260. https://doi.org/10.1002/ijfe.2474
Kryzanowski, L. (2023). Effect of COVID-19 on non-performing loans in China. Finance Research Letters, 52(Query date: 2024-04-02 16:46:38). https://doi.org/10.1016/j.frl.2022.103372
Kuzucu, N. (2019). What Drives Non-Performing Loans? Evidence from Emerging and Advanced Economies during Pre- and Post-Global Financial Crisis. Emerging Markets Finance and Trade, 55(8), 1694–1708. https://doi.org/10.1080/1540496X.2018.1547877
Le, C. (2022). Bank efficiency in Vietnam: Do scale expansion strategies and non-performing loans matter? International Journal of Finance and Economics, 27(1), 822–843. https://doi.org/10.1002/ijfe.2179
Liu, L. (2020). Sustainable visual analysis for bank non-performing loans and government debt distress. Sustainability (Switzerland), 12(1). https://doi.org/10.3390/SU12010131
Tran, D. V. (2022). Banks’ financial soundness during the COVID-19 pandemic. Journal of Economics and Finance, Query date: 2024-04-02 16:46:38. https://doi.org/10.1007/s12197-022-09591-x
Xie, Z. (2022). Achieving Financial Sustainability through Revenue Diversification: A Green Pathway for Financial Institutions in Asia. Sustainability (Switzerland), 14(6). https://doi.org/10.3390/su14063512
Copyright and Licensing
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.