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

Seyed Alireza Athari (), Chafic Saliba, Danielle Khalife and Madonna Salameh-Ayanian
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Seyed Alireza Athari: Department of Business Administration, Faculty of Economics and Administrative Sciences, Cyprus International University, 99258 Nicosia, Northern Cyprus, Turkey
Chafic Saliba: Business School, Holy Spirit University of Kaslik, Kaslik, Jounieh P.O. Box 446, Lebanon
Danielle Khalife: Business School, Holy Spirit University of Kaslik, Kaslik, Jounieh P.O. Box 446, Lebanon
Madonna Salameh-Ayanian: Business School, Holy Spirit University of Kaslik, Kaslik, Jounieh P.O. Box 446, Lebanon

Sustainability, 2023, vol. 15, issue 13, 1-15

Abstract: Extant literature suggests that the banking sector’s sustainability is achievable by minimizing the risk factors, in particular, credit risk (CR). Despite prior studies, there are fewer attempts to considerably probe the role of country governance settings in managing CR and ultimately achieving sustainability. Therefore, this study aims to test this nexus for the banking sector operating in BRICS developing economies. Specifically, this research attempts to explore whether country governance has a moderator role between CR and the exposure of environments to risk factors. To achieve these objectives, we conduct panel data analysis using the quantile (QR) and fixed effects (FE) estimation methods. The results show that increasing liquidity, profitability, capital requirements, and income diversification lead to decreasing CR, whereas increasing inefficiency causes an increase in CR. In addition, the results reveal that a country’s increasing vulnerability to a specific financial risk index (FRI), economic risk index (ERI), and political risk index (PRI); developing capital markets; increasing lending interest rates; and weakening country governance quality is significantly linked to increasing CR. Remarkably, the results underscore that country governance has a significant moderator role, and by enhancing the quality of country governance, the impact of country-specific FRI, ERI, and PRI on CR could be attenuated.

Keywords: banking sector sustainability; credit risk; financial risk; economic risk; political risk; governance; BRICS (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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