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Bank Credit Growth and Trust: Does Institutional Quality Matter? Evidence from the Association of Southeast Asian Nations

Author

Listed:
  • MOHAMED ALBAITY

    (Department of Finance and Economics, College of Business Administration, University of Sharjah, Sharjah, United Arab Emirates)

  • RAY SAADAOUI MALLEK

    (Department of Finance and Economics, College of Business Administration, University of Sharjah, Sharjah, United Arab Emirates)

  • ABU HANIFA MD. NOMAN

    (Southampton Malaysia Business School, Faculty of Social Science, University of Southampton Malaysia, Iskandar Puteri, Johor Bahru, Malaysia)

  • HUSSEIN A. HASSAN AL-TAMIMI

    (Department of Finance and Economics, College of Business Administration, University of Sharjah, Sharjah, United Arab Emirates)

Abstract

This study investigated whether the quality of governance, trustworthiness, and confidence impacts bank credit growth. In addition, we examined credit growth cyclicality in 10 members of the Association of Southeast Asian Nations. By employing data concerning 282 banks between 2012 and 2019, this study found that trustworthiness boosted bank credit growth. Overall, the increased quality of governance was found to increase credit growth, except for the specific indicators of voice and accountability and political stability, which were found not to influence bank credit growth. Moreover, similar to prior findings in related fields, the empirical results of this study confirmed the complementary effect of informal and formal institutions on bank credit growth. Lastly, results indicated that banks were pro-cyclical regarding credit growth. Overall, the results of this study highlighted the role of the supervisory powers of governments in boosting credit expansion, mainly during economic upturns.

Suggested Citation

  • Mohamed Albaity & Ray Saadaoui Mallek & Abu Hanifa Md. Noman & Hussein A. Hassan Al-Tamimi, 2022. "Bank Credit Growth and Trust: Does Institutional Quality Matter? Evidence from the Association of Southeast Asian Nations," Asian Development Review (ADR), World Scientific Publishing Co. Pte. Ltd., vol. 39(02), pages 223-259, September.
    • Handle: RePEc:wsi:adrxxx:v:39:y:2022:i:02:n:s0116110522500172
    DOI: 10.1142/S0116110522500172
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    Keywords

    bank credit growth; country governance indicators; pro-cyclicality; transmission mechanisms; trust;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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