Title: Financial sector development and credit risk: an insight of BRICS countries using continuously updated fully modified and continuously updated bias corrected methods

Authors: Aamir Aijaz Syed; Muhammad Abdul Kamal

Addresses: Institute of Management Commerce and Economics, Shri Ramswaroop Memorial University, Lucknow, India ' Department of Economics, Abdul Wali khan University, Pakistan

Abstract: The impact of financial sector development on non-performing loans (NPLs) among emerging countries is inconclusive. For this purpose, the study investigates the relationship between financial sector development and NPLs among BRICS countries, covering the period from 1995-2018. The study has used a novel continuously-updated fully-modified (CUP-FM), and continuously-updated bias-corrected model (CUP-BC) for long-run estimation, together with CIPS, CADF second-generation unit root test, and Westerlund cointegration analysis. The findings infer that financial intermediation in terms of banks' deposits to GDP ratio and private credit to GDP ratio negatively impact NPLs in the long run. Furthermore, financial sector efficiency, financial sector stability, and regulatory capital help in reducing NPLs in the long run in BRICS countries. However, the study highlights that financial sector liberalisation in terms of foreign banks' presence has an insignificant relationship with NPLs in BRICS countries in the long run. This study offers useful policy implications.

Keywords: financial sector development; credit risk; CUP-FM; CUP-BC; BRICS; non-performing loans; NPLs.

DOI: 10.1504/IJEBR.2023.131782

International Journal of Economics and Business Research, 2023 Vol.26 No.1, pp.110 - 128

Received: 29 Mar 2021
Accepted: 24 Jun 2021
Published online: 03 Jul 2023 *