Financial sector development and credit risk: an insight of BRICS countries using continuously updated fully modified and continuously updated bias corrected methods

Aamir Aijaz Syed and Muhammad Abdul Kamal

International Journal of Economics and Business Research, 2023, vol. 26, issue 1, 110-128

Abstract: The impact of financial sector development on non-performing loans (NPLs) among emerging countries is inconclusive. For this purpose, the study investigates the relationship between financial sector development and NPLs among BRICS countries, covering the period from 1995-2018. The study has used a novel continuously-updated fully-modified (CUP-FM), and continuously-updated bias-corrected model (CUP-BC) for long-run estimation, together with CIPS, CADF second-generation unit root test, and Westerlund cointegration analysis. The findings infer that financial intermediation in terms of banks' deposits to GDP ratio and private credit to GDP ratio negatively impact NPLs in the long run. Furthermore, financial sector efficiency, financial sector stability, and regulatory capital help in reducing NPLs in the long run in BRICS countries. However, the study highlights that financial sector liberalisation in terms of foreign banks' presence has an insignificant relationship with NPLs in BRICS countries in the long run. This study offers useful policy implications.

Keywords: financial sector development; credit risk; CUP-FM; CUP-BC; BRICS; non-performing loans; NPLs. (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijecbr:v:26:y:2023:i:1:p:110-128

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