Banking Regulation, Credit Risk, and Financial Stability: Evidence from Emerging Economies
DOI:
https://doi.org/10.66348/jefa.26.v1.n1.a21Keywords:
Banking regulation; Credit risk; Financial stability; Capital adequacy; Liquidity management; Emerging economies; Panel GMM; Threshold effectsAbstract
This study examines the role of banking regulation in shaping credit risk and financial stability across 12 emerging and developing economies from 2005 to 2022. Using panel data techniques, including fixed effects, random effects, system GMM, panel quantile regression, and threshold analysis, the study investigates how capital adequacy, regulatory quality, liquidity, and bank concentration influence non-performing loans (NPLs) and bank stability (Z-score). Results reveal that higher capital ratios, effective regulatory oversight, and robust liquidity significantly reduce credit risk and enhance financial stability. Threshold analysis indicates a non-linear effect, with banks exceeding a 10% capital adequacy ratio experiencing a stronger reduction in NPLs. Additionally, macroeconomic factors such as GDP growth, inflation, and interest rates play an important moderating role. These findings underscore the necessity of enforcing minimum capital requirements, strengthening regulatory frameworks, and adopting risk-sensitive supervisory measures to foster resilient banking sectors in emerging economies.
Received: 2026-03-30 | Revised: 2026-05-25 | Accepted: 2026-05-26 | Published: 2026-05-30
Declarations
Ethics and Guidelines: Not applicable.
Consent to participate: Not applicable.
Consent to publish: The authors have provided consent to publish.
Competing interests: The authors declare no competing interests.
Data availability statement: Data will be made available on reasonable request from the corresponding author.
Funding: This research received no external funding.
Clinical Trial Number: Not Applicable.
Declaration of using generative AI: During the preparation of this work the author(s) used ChatGPT in order to correct the grammatical errors. After using this tool/service, the author(s) reviewed and edited the content as needed and take full responsibility for the content of the published article.
Author Contributions: Conceptualization, M.E.A.; methodology, M.E.A.; formal analysis, M.E.A.; writing—original draft preparation, M.E.A.; writing—review and editing, M.E.A. All authors have read and agreed to the published version of the manuscript.
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Data will be made available on reasonable request from the corresponding author.
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