The Impact of Credit Risk and Investment Risk on Banking Performance in Asia and Developed Countries

This study investigates the impact of credit risk (measured by Non-Performing Loans or NPLs) and investment risk (including Loan to Deposit Ratio or LDR for liquidity, Capital Adequacy Ratio or CAR for solvency, and market volatilities) on banking performance (Return on Assets or ROA) in Asian countries and developed economies, based on a literature review up to 2024. It compares emerging Asian economies with advanced nations, incorporating insights from Indonesian state banks, Islamic banking, and conventional banking to highlight regional differences. Employing a quantitative methodology with secondary data from financial statements, the research uses multiple linear regression to link risk variables to ROA, supplemented by descriptive statistics, comparative models, and qualitative case studies on risk management. Findings reveal that credit risk significantly negatively affects profitability in both regions, with Asian banks more vulnerable due to economic cycles, regulatory gaps, and high NPLs, leading to ROA declines in Indonesian banks (2017-2023). Investment risk, particularly high LDR, worsens liquidity issues in Asia, reducing ROA, while strong CAR promotes stability in developed countries. Comparative data (2019-2024) shows Asian banks’ challenges from tax incentives and market perceptions versus advanced practices. Recommendations include enhanced credit monitoring, portfolio diversification, regulatory harmonization, and ethical frameworks in Islamic banking (e.g., 5C+1A) for better SME outcomes. Policy suggestions emphasize capacity building and technology adoption. Risks are universal but amplified in Asia by developmental disparities. Future research should extend to 2025+ and address digital disruptions.