Bank’s Management Efficiency and Credit Risk In The ASEAN-6 Banking Industry

This study investigates the impact of management efficiency on credit risk in the ASEAN-6 banking industry, comprising Singapore, Malaysia, Indonesia, Thailand, Vietnam, and the Philippines. We analyze a sample of 122 banks from 2009 to 2022, utilizing panel data analysis with a random effect model (REM). The study addresses four key research questions: (1) What is the impact of management efficiency on credit risk? (2) Does bank size moderate the relationship between management efficiency and credit risk? (3) Does the corruption index moderate the relationship between management efficiency and credit risk? (4) Does Islamic banking perform better than conventional banks? Our findings reveal a negative and significant relationship between management efficiency and credit risk, indicating that higher management efficiency leads to increased credit risk. The study also finds that Islamic banks exhibit higher credit risk compared to conventional banks. Interaction effects show that larger banks and those in less corrupt countries tend to have lower credit risk. These results suggest that while efficient management practices are crucial, they may lead to higher risk if not accompanied by adequate risk management strategies. Additionally, the regulatory environment and bank size play a significant role in mitigating credit risk. The implications of these findings are vital for bank managers and policymakers. Bank managers should balance efficiency with robust risk management practices, and policymakers should consider the regulatory environment and corruption levels when formulating policies for the banking sector.