Impact of Credit Risk Indicators on the Financial Health of Malaysian Commercial Banks During COVID-19: An ARDL Bound Test Approach
List of Authors
Izaan Jamil, Shahid Al Mamun, Zaiton Osman
Keyword
COVID-19 Pandemic, Malaysian Banks, Financial Performance, Credit Risk, Capital Adequacy Ratio, Non-Performing Loans, Return on Assets
Abstract
The COVID-19 pandemic presented unprecedented challenges for financial institutions worldwide, particularly commercial banks. This study investigates the impact of credit risk indicators, i.e., Capital Adequacy Ratio (CAR) and Non-Performing Loans (NPL), on the financial performance of six major Malaysian commercial banks, listed on the KLCI index between Q1 2015 and Q4 2022. Using the Autoregressive Distributed Lag (ARDL) Bound Test and Error Correction Models (ECM), the study identifies a significant long-run relationships between CAR and Return on Assets (ROA) for Maybank and RHB Bank. The results also reveal that NPL had a detrimental impact on bank profitability during the pandemic, highlighting the critical role of capital adequacy and effective credit risk management in maintaining bank performance, amid economic shocks. These findings offer actionable insights for policymakers and bank managers to enhance stability and profitability in Malaysian’s banking sector.