ISSN: 2226-3624
Open access
The unprecedented COVID-19 pandemic around the world is one of the shocking events in this decade. It has affected the financial institution in particular and banking institutions worldwide. Policymakers are getting worried due to the continuous increases in credit risk, and the situation is expected to worsen in the era of COVID-19 pandemic. The COVID-19 pandemic is said to be no difference with financial crisis. It affects the banking system and the commercial banks throughout the world has suffered a steady increase in the credit risk. Therefore, this paper tries to assess the the impact of COVID-19 on credit risk in Malaysian banking system. Two models were developed to test for the impact of COVID-19 pandemic. Model 1 was developed to present COVID-19 pandemic as the sole impact on the credit risk while Model 2 included the interaction between the economic performance and COVID-19. Johansen cointegration method was utilized in this study. The quarterly data spanning from 2013 to 2020 were tested. Finding revealed that COVID-19 pandemic influence the credit risk in the long run equilibrium through the interaction of economic performance. This implies that the failure of payback the loans during the COVID-19 pandemic together with the lower economic performance may constraint the bank’s ability to lend to other borrower thus causes the to experience the rising outstanding loans and create problems in banking the system. This can harm the entire banking institution and the economic conditions as a whole.
Ahmad, Z., Ahmad, N. B. N. S. (2019). Bank risk, shock event and profitability in Islamic Banks: Adoption of panel data analysis. The 2nd International Conference on Islamic Economics, Business, and Philanthropy (ICIEBP) Surabaya Indonesia.
Ari, A., Chen, S., & Ratnovski, L. (2020): The dynamics of non-performing loans during banking crises: a new database, ECB Working Paper, No. 2395. European Central Bank. https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2395~834e0e7137.en.pdf
BNM. (2021). Economic and Financial Developments in Malaysia in the Second Quarter of 2021. https://www.bnm.gov.my/-/economic-and-financial-developments-in-malaysia-in-the-second-quarter-of-2021
Barua, B., & Barua, S. (2021). COVID-19 implications for banks: evidence from an emerging economy. SN Business & Economics, 1(19), 1-28
Duffie, D., & Singleton, K. J. (2003). Credit Risk. Princeton, New Jersey
Friedland, J. (2009). The subprime and financial crises. International Journal of Disclosure and Governance, 6(1), 40-57.
Glynn, J., & Perera, N. (2007) Unit Root Tests and Structural Breaks: A Survey with Applications. Journal of Quantitative Methods for Economics and Business Administration, 3(1), 63-79.
Hardiyanti, S. E., & Aziz, L. H. (2021). The case of Covid-19: impact on the level of non performing loans of conventional commercial banks in Indonesia. Banks and Bank System, 16(1), 62-68.
Hue, N. T. (2015). Non-Performing Loans: Affecting Factor for the Sustainability of Vietnam Commercial Banks. Journal of Economics and Development, 17(1), 93-106.
Johansen, S. (1988). Statistical Analysis of Cointegration Vectors. Journal of Economic Dynamics and Control,12 (2-3), 231–254
Johansen, S., & Julius, K. (1990). Maximum Likelihood Estimation and Inference on Cointegration– with Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52(2),169–210.
Kasinger, J., Krahnen, J. P., Ongena S., Pellizon, L., Schaneling, M., & Wahrenburg, M. (2021). Non-performing loans - new risks and policies? NPL resolution after COVID-19: Main differences to previous crises. SAFE White Paper, No. 84, 1-42.
Laeven, L., & Valencia, F. (2013). Systemic Banking Crises Database. IMF Economic Review, 61 (2), 225–270.
OECD. (2021), “The COVID-19 crisis and banking system resilience: Simulation of losses on nonperforming loans and policy implications. https://www.oecd.org/daf/fin/financial-markets/COVID-19-crisis-and-banking-system-resilience.pdf
Okenyuri, O. E. (2013). The Relationship between Macroeconomic Factors and the Level of Nonperforming Loans in the Banking Industry in Kenya. Unpublished Master Thesis, University of Nairobi.
Park, C. Y., Villafuerte, J., & Badri, N. A. A. (2020). An Updated Assessment of the Economic Impact of COVID-19. ADB Briefs, No 133, 1-16. http://dx.doi.org/10.22617/BRF200144-2
The Malaysian Reserve. (2020). Credit costs to banks could rise to RM29b in 2020, 2021 – BNM. The Malaysian Reserve. https://themalaysianreserve.com/2020/10/14/credit-costs-to-banks-could-rise-to-rm29b-in-2020-2021-bnm/
Wahyudi, C. A., & Arbay, E. A. (2021), The Impact of OJK Regulation No. 48/POJK.03/2020 on the Quality of Credit and Risk Management of Banking Credit. Journal of Economics and Business, 4 (1), 204-213.
Wiseman, R. M., & Catanach, A. H. J. (1997). A longitudinal disaggregation of operational risk under changing regulations: evidence from the saving and loan industry. The Academy of Management Journal, 40(4), 799-830.
In-Text Citation: (Ahmad et al., 2022)
To Cite this Article: Ahmad, Z., Mahmood, R., & Zahari, A. S. M. (2022). The Impact of COVID-19 on Credit Risk: An Assessment in Malaysian Banking System. International Journal of Academic Research in Economics and Managment and Sciences, 11(3), 256–264.
Copyright: © 2022 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode