Aug 2026· Eduvest - Journal Of Universal Studies· 0 citations· 16 references
Abstract
This research investigates how liquidity creation induces moral hazard behavior and affects credit quality in Indonesian commercial banks. This study examines the effect of liquidity creation, liquidity risk, and central bank policies on credit risk in Indonesian commercial banks, proxied by the non-performing loan (NPL) ratio. Using panel data from 46 banks listed on the Indonesia Stock Exchange over 2015–2024, we apply the Two-Step System Generalized Method of Moments (SYS-GMM) to address endogeneity inherent in dynamic panel models. Results indicate that liquidity creation has a significant positive effect on NPL, consistent with the moral hazard hypothesis. Liquidity risk (LDR) also significantly and positively affects NPL. Reserve requirements (GWM) and BI-Rate do not produce a direct and significant effect on NPL. Return on assets (ROA) significantly and negatively affects NPL. These results suggest that credit risk in Indonesian commercial banking is predominantly influenced by bank-level intermediation behavior rather than by macroeconomic or policy variables. The research concludes that excess liquidity conditions incentivize aggressive credit expansion without proportionate attention to borrower quality, particularly in an oligopolistic market structure with implicit state guarantees.
This study investigates the impact of liquidity risk on asset quality and financial stability in Uzbekistan’s commercial banking sector. Using quarterly time-series data from 2016 to 2024, the study employs Ordinary Least Squares (OLS) regression with quadratic specifications to capture potential non-linear effects of liquidity. Two models are estimated to examine (i) the relationship between liquidity risk and asset quality, and (ii) the impact of liquidity risk on financial stability, proxied by net profit. The results indicate that liquidity risk does not have a statistically significant effect on asset quality, suggesting that credit performance is primarily driven by structural and macroeconomic factors rather than liquidity conditions. In contrast, the financial stability model demonstrates high explanatory power (R2 = 0.883), although individual coefficients are statistically insignificant due to severe multicollinearity among banking sector variables. The findings do not support the conventional liquidity–profitability trade-off hypothesis, as no evidence of a linear or non-linear relationship between liquidity and profitability is observed. Regulatory capital emerges as the most influential variable, indicating the importance of capital strength in supporting banking stability. This study contributes to the literature by providing novel empirical evidence from a transition economy, highlighting the limitations of isolating liquidity effects in rapidly expanding banking systems. The results suggest that in reform-oriented financial environments, banking stability is shaped more by structural growth and capital adequacy than by liquidity trade-offs, offering important implications for macroprudential policy design.
Akrom A. Omonov, B. Izbosarov, Erlane K. Ghani· Journal of Risk and Financia...· 0 citations
Non-performing loans (NPLs) constitute an important concern for banking stability and credit creation, more so for developing countries where commercial banks play a crucial role in economic growth (Bernanke et al., 1994; Markovic, 2006). Much literature has examined the association between the quality of banking assets and their consequences, but little evidence exists on how NPLs impact bank lending through the capital channel. This study tests the relationship between NPL shocks and banks’ lending behaviour, as well as the moderating effect of the capital adequacy ratio (CAR) and common equity tier 1 (CET1) on this link. The research employs two-way fixed effects (TWFE) and dynamic difference generalized method of moments (GMM) on the unbalanced panel dataset obtained from 42 Chinese commercial banks listed between 2013 and 2023. The results show that a rise in the NPL ratio considerably decreases loan growth rates. This means that worsening credit risk reduces banks’ ability to lend money. While neither CAR nor CET1 stimulates lending, a higher CET1 makes NPLs’ adverse influence greater. Thus, capital buffers improve the solvency position, but they cannot protect against the negative supply-side impacts of declining asset quality. This highlights the need for stronger NPL resolution frameworks and countercyclical capital management.
Lingrong Hou, Nur Laili Ab Ghani, A. H. Jamil· Journal of Governance and Re...· 0 citations
This study examines the effects of liquidity risk and credit risk on the stability of Nepalese commercial banks. Return on assets and Altman Z-score are the selected dependent variables. The selected independent variables are non-performing loan, capital adequacy ratio, bank size, loan-to-deposit ratio, debt-to-equity ratio, interest rate spread and loan loss provision. The study is based on secondary data of 12 commercial banks with 120 observations for the study period from 2014/15 to 2023/24. The data were collected from Bank Supervision Report published by Nepal Rastra Bank (NRB) and annual reports of the selected commercial banks. The correlation coefficients and regression models are estimated to test the significance and importance of liquidity risk and credit risk on the stability of Nepalese commercial banks. The study showed that non-performing loan has a negative impact on Z-score and return on assets. It implies that increase in nonperforming loan leads to decrease in Z-score and return on assets. In addition, capital adequacy ratio has a positive impact on Z-score and return on assets. It implies that increase in capital adequacy ratio leads to increase in Z-score and return on assets. However, bank size has a negative impact on Z-score and return on assets. It shows that increase in bank size leads to decrease in Z-score and return on assets. Likewise, loan to deposit ratio has a negative impact on Z-score and return on assets. It implies that increase in loan to deposit ratio leads to decrease in Z-score and return on assets. Similarly, debt to equity ratio has a negative impact on Z-score and return on assets. It implies that increase in debt-to-equity ratio leads to decrease in Z-score and return on assets. In addition, interest rate spread has a positive impact on Z-score and return on assets. It implies that increase in interest rate spread leads to increase in Z-score and return on assets. However, loan loss provision has a negative impact on Z-score and return on assets. It shows that increase in loan loss provision leads to decrease in Z-score and return on assets.
Lelina Pokhrel· Nepalese Journal of Economic...· 0 citations
The study examined the effect of sectoral credit allocations (agricultural, manufacturing, and
SME) on the liquidity stability of Nigeria’s banking sector, a dimension often overshadowed
by profitability and capital adequacy studies. Using quarterly times series data for a period
of 24 years, (from 2000Q1–2023Q4) obtained from the Central Bank of Nigeria and World
Bank Development Indicators, the study applied the Fully Modified Ordinary Least Squares
(FMOLS) method with supporting cointegration and error correction models. Findings
revealed a long-run relationship between sectoral credit distribution and liquidity, where
manufacturing credit significantly enhanced liquidity stability, reflecting its relatively
predictable cash flows and lower default risks. In contrast, small and medium-sized
enterprise (SME) credit exerts a negative impact, highlighting its vulnerability to defaults and
financing constraints, while agricultural credit shows no significant effect. These results
suggest that uniform credit expansion policies may undermine systemic resilience. The study
therefore recommended sector-sensitive credit frameworks, including risk-sharing schemes
for agriculture, credit guarantees for SMEs, and targeted incentives for manufacturing, which
is believed are vital for safeguarding liquidity, depositor confidence, and long-term banking
sector stability
S. Amana· International Journal of Eco...· 0 citations
This study examines the impact of credit, liquidity, and market risks on the profitability of Nepalese commercial banks. Return on assets and return on equity are the selected dependent variables representing profitability. The selected independent variables are non-performing loan, loan loss provision rate, loan to deposit ratio, liquidity ratio, net interest margin, and market risk. The study is based on secondary data of 12 commercial banks with 120 observations for the study period from 2014/15 to 2023/24. The data were collected from Bank Supervision Report published by Nepal Rastra Bank (NRB) and annual reports of the selected commercial banks. The correlation coefficients and regression models are estimated to test the significance and importance of impact of credit, liquidity, and market risks on the profitability of Nepalese commercial banks. The study revealed that non-performing loan has a negative effect on return on assets and return on equity. It indicates that increase in non-performing loan leads to decrease in return on assets and return on equity. Similarly, loan loss provision rate has a negative effect on return on assets and return on equity. It indicates that increase in loan loss provision rate leads to decrease in return on assets and return on equity. Likewise, liquidity ratio has a negative effect on return on assets and return on equity. It indicates that increase in liquidity ratio leads to decrease in return on assets and return on equity. In addition, net interest margin has a positive effect on return on assets and return on equity. It indicates that increase in net interest margin leads to increase in return on assets and return on equity. Furthermore, market risk has a positive effect on return on assets and return on equity. It indicates that increase in market risk leads to increase in return on assets and return on equity.
Bikash Thapa Magar· Nepalese Journal of Finance· 0 citations
This study examines the effect of RGEC framework, comprises four key components: Risk Profile, Good Corporate Governance, Earnings, and Capital, on the risk-taking behavior of banks in Indonesia. Banks’ risk-taking behavior is proxied by the Z-Score, which reflects bank stability and insolvency risk. Within the RGEC framework, risk profile is proxied by Non-Performing Loans (NPLs), Good Corporate Governance is proxied by Institutional Ownership (INST), earnings is proxied by Operational Inefficiency (BOPO), and capital is proxied by Capital Adequacy Ratio (CAR). This study employs a quantitative approach using a dynamic panel data regression model estimated with the two-step System Generalized Method of Moments (GMM). The sample consists of 33 banks listed on the Indonesia Stock Exchange (IDX) over the period 2017–2022, using secondary data obtained from banks’ annual financial statements. The empirical results indicate that Non-Performing Loans (NPLs), Institutional Ownership, and Operational Inefficiency (BOPO) have a negative and significant effect on the Z-Score, suggesting that higher credit risk, stronger institutional ownership, and lower operational efficiency increase banks’ risk-taking behavior. In contrast, the Capital Adequacy Ratio (CAR) has a positive but insignificant effect on the Z-Score, indicating that higher capital adequacy tends to reduce banks’ risk-taking behavior, although the effect is not statistically significant. Overall, the findings highlight the importance of RGEC components in explaining variations in risk-taking behavior among Indonesian banks and provide relevant insights for banking regulators and bank management in strengthening prudential supervision and risk governance.
Hamdi, Lasma Melinda Siahaan, Muhammad Farhan Syarkawi et al.· Journal of Social Economics...· 0 citations