The role of credit risk in shaping the market performance of commercial banks: An applied study on the banking sector in the Kingdom of Saudi
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Abstract: This study aims to measure the impact of credit risk, expressed by four indicators (total loans to total assets, non-performing loans to total loans, total loans to total deposits, and total loans to equity), on the performance of the interbank market, expressed by two indicators (interbank loans to total loans and excess liquidity to liquid assets). The study focuses on a sample of commercial banks in Saudi Arabia, covering an eight-year period from 2016 to 2023, and includes six selected commercial banks.
The study employed panel data analysis, utilizing three models: The Pooled Regression Model, the Fixed Effects Model, and the Random Effects Model, to measure and analyze the relationship between credit risk and interbank market performance. Regression analysis was also conducted to clarify the impact of credit risk on the interbank market. Two models were adopted for the study. The first model illustrated the relationship between credit risk (independent variables) and interbank market performance (dependent variable), using four indicators for each type of risk to represent the independent variables, along with indicators for the interbank market to represent the dependent variable in each model.The results of the study, specifically for the Saudi commercial banks in the sample, showed a lack of significant or insignificant correlation between credit risk indicators (independent variables) and the interbank market performance index (dependent variable).
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