Impact of Financial Crisis on Credit Risk: Pre- and Post-financial Crises 
in an Emerging Economy

Abstract

This aim of the article is to establish a model to discuss the reasons for changing the level of credit risk among the commercial banks of Bangladesh during the global financial crisis (GFC). Credit risk has been remaining as the essential and core risk in commercial banking activities. Multiple regression analysis is used to test the relationship among the level of credit risk as a dependent variable and financial crisis, other bank-level variables and macroeconomic variables. The causes of the GFC revealed not only systematic or structural imbalances but also the necessity to keep and strengthen the principles of credit risk management. We analyse the leading causes of the recent GFC. Moreover, the lessons that must be learnt from the weaknesses of credit risk management systems. Credit risk was found to respond to macroeconomic conditions, which indicate strong feedback effects from the banking system to the real economy. This article represents the analysis of the influence of the financial crisis on credit risk management in commercial banks and summarizes the challenges faced by banks for credit risk improvement. We hope that this reality creates new opportunities for managing credit risk in the future to increase this importance in the banks and the overall economy of Bangladesh.

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“…In connection with the financial crisis’s effect, Moudud-Ul-Huq (2018) shows a negative relationship between crisis and capital. In the risk (financial stability model), the crisis has a positive (negative) impact (Moudud-Ul-Huq et al , 2020a).…”

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“…The debt crisis spread to NBFCs was not unexpected thereafter in 2019. The impact of a negative relationship between post GFC and credit risk can create a significant impact on GDP (Moudud-Ul-Huq et al, 2020).…”

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“…This study also provides future research avenues by considering cross-country analysis using other economic indicators such as economic or financial crisis (Moudud- Ul-Huq et al, 2020), foreign direct investment and innovation. In addition, the researcher can underpin the most developed economies like the United States, Japan, Australia, or even China as the previous literature mostly grown-up African and few Asian economies.…”