What drives the credit risk in the banking sector? A systematic literature review

Abstract

A stable banking sector is an essential part of the modern-day economy and higher credit risk is a major source of bank instability. Therefore, many research studies have been conducted to identify the determinants of credit risk in the past three decades. The purpose of this paper is to conduct a systematic literature review of the prior studies on the determinants of credit risk published from 1988 to 2022 in peer-reviewed journals. The motivations of this study are to draw a more comprehensive conceptual framework of credit risk determinants, evaluate the policy responses to recent banking crises and propose future research avenues. The findings of 452 relevant prior studies are divided into three broad categories of credit risk determinants. The three broad categories are macro, bank-specific and sector-specific variables which are then divided into six sub-categories and further divided into 43 credit risk determinations. The results reveal that more specific, multidiscipline and multicounty research studies may help to further understand this topic to improve stability in the banking sector. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.