How do financial systems influence the determinants of credit growth? New evidence from the Southeast Asian banking sector

This paper investigates the determinants of bank credit growth in Southeast Asia using panel data from 185 banks across ten countries between 2000 and 2022. Employing fixed-effects models with two-way clustering and robustness checks via GMM, Prais-Winsten, and Newey–West estimators, our study finds that credit risk, bank size, cost-to-income ratio, and inflation significantly constrain credit growth, while the loan-to-deposit ratio, profitability, income diversification, liquidity, and macroeconomic conditions such as money supply and GDP growth promote credit growth. Notably, the COVID-19 pandemic had a substantial negative impact on credit expansion, in contrast to the global financial crisis, which saw a resilient credit supply in the region. Furthermore, in bank-based systems, credit growth is more sensitive to internal bank conditions, especially non-performing loans and profitability—reflecting heavy reliance on traditional intermediation. Conversely, in market-based systems, variables like money supply growth and operational efficiency play a greater role, and the effect of bank-level profitability on credit is reversed. The asymmetric responses to inflation and crisis shocks across systems further underscore the importance of institutional context. These findings provide a more detailed understanding of credit dynamics in ASEAN and offer valuable insights for designing differentiated regulatory and monetary policies.