Credit Risk, Capital, and Inefficiency: An Empirical Analysis of SAARC Banking Sector

Abstract

: The main purpose of this study is to investigate the relationship between credit risk, capital, and inefficiency of South Asian Association for regional Cooperation (SAARC) banks. The study used seemingly unrelated regressions (SUR) approach on panel data for the period 2010-2016. The findings suggest that highly capitalized banks tend to increase inefficiency and credit risk faced by SAARC banking sector. There are no major differences in relationship between credit risk, capital, and inefficiency in SAARC banks. The findings suggest that regulators and policy makers may need to assess the relationship between credit risk, capital, and efficiency while designing banking regulations.