Does Macroprudential Policy Matter to Manage Banking Credit Risk? Evidence from Commercial Banks in Asia-Pacific Region

Abstract

The global financial crisis triggered a debate on the pros and cons of using macroprudential policy as a prudential control tool that includes capital reserves or requirements to address systemic risk, financial credit cycles, and macroeco­nomic stabilization objectives. The macroprudential policy has now been establi­shed as an area of financial policy to stop excessive risk-taking in the financial sec­tor and reduce its consequences to the real economy in response to the lessons learned from the global financial crisis. Controlling credit risk also requires a government-run fiscal sector, one of which is controlling corruption. Corruption sig­nificantly affects credit risk. This study aims to examine the effectiveness of macro­prudential policy instruments and the role of institutional instruments in controlling commercial bank credit risk in the Asia Pacific region from 2012 to 2023. This study uses the generalized method of moments (GMM) as an analytical tool. The results show that loan-to-value and corruption significantly affect credit risk in Asia Pacific.