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<p>Credit risk remains a pivotal factor influencing the profitability and stability of the banking sector, particularly in the world’s largest economies. This study investigates the impact of credit risk, measured through non-performing loans (NPLs), on bank profitability using a panel quantile regression approach. Analyzing data from 17 largest economies by GDP between 2002 and 2020, the study explores the heterogeneous effects of credit risk across different profitability levels while considering key macroeconomic and financial control variables. The findings reveal a significant negative relationship between NPLs and bank profitability, particularly for institutions in the lower quantiles, indicating that less profitable banks are more vulnerable to credit risk. Additionally, the study highlights the adverse impact of cost inefficiencies and excessive lending on profitability, emphasizing the importance of stringent credit risk management practices. Regulatory capital requirements, while essential for financial stability, may also constrain profitability. Economic growth positively influences bank profitability, whereas inflation shows an insignificant effect. These results underscore the need for proactive risk mitigation strategies, effective cost management, and balanced regulatory policies to enhance banking sector resilience. The study provides valuable insights for policymakers, financial institutions, and regulators striving to foster financial stability and sustainable profitability in global banking.</p>

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The Role of Credit Risk in Shaping the Profitability of the Banking Sector in the World's Largest Economies: Evidence from Panel Quantile Regression

  • 期刊论文

  • 发表日期：

    2025年10月28日

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  • Emmanuel Ezekiel Mwanjilinji,
  • Twahil Hemed Shakiru,
  • Fei-Ming Huang

摘要

Credit risk remains a pivotal factor influencing the profitability and stability of the banking sector, particularly in the world’s largest economies. This study investigates the impact of credit risk, measured through non-performing loans (NPLs), on bank profitability using a panel quantile regression approach. Analyzing data from 17 largest economies by GDP between 2002 and 2020, the study explores the heterogeneous effects of credit risk across different profitability levels while considering key macroeconomic and financial control variables. The findings reveal a significant negative relationship between NPLs and bank profitability, particularly for institutions in the lower quantiles, indicating that less profitable banks are more vulnerable to credit risk. Additionally, the study highlights the adverse impact of cost inefficiencies and excessive lending on profitability, emphasizing the importance of stringent credit risk management practices. Regulatory capital requirements, while essential for financial stability, may also constrain profitability. Economic growth positively influences bank profitability, whereas inflation shows an insignificant effect. These results underscore the need for proactive risk mitigation strategies, effective cost management, and balanced regulatory policies to enhance banking sector resilience. The study provides valuable insights for policymakers, financial institutions, and regulators striving to foster financial stability and sustainable profitability in global banking.