Impact of Finacial Inclusion on Banks Credit Risk in Afghanistan: Empirical Evidence from Afghanistan s Banking Sector

Abstract

This paper investigates the impact of financial inclusion on credit risk in nine commercial banks in Afghanistan, covering the data of 12 years from 2010-2021. Financial inclusion has been measured by the number of loan accounts, number of deposits, number of branches, and number of ATMs. Moreover, other bank-specific and macroeconomic variables are used as control variables like CAR, AGR, LTD, INT, INF, and GDP. This study applied panel data, random regression to test the hypothesis, and a generalized method of moment (GMM) regression model to test the effect of financial inclusion on credit risk. This study’s findings show that the number of loans on credit risk is positive and significant. However, the impact of the number of deposits on credit risk is affirmative but insignificant. On the other hand, the impact of the number of branches on credit risk is positive and significant, while the effect of the number of ATMs is significant and negative. Among the control variables, the finding of this paper indicates that CAR, AGR, GDP, and LTD have a negative link with credit risk and considerably impact decreasing Credit risk. INR and INF positively link with credit risk, but their impact is insignificant. This research will contribute to the DAB and other government-involved policymakers to use the valuable findings of this study while developing the future financial inclusion strategy in cooperation with bank managers to expand financial inclusion in line with commercial bank targets.