The Effect of Bank Liquidity and Unemployment on Bank Credit Risk

Abstract

The aim of this article is to investigate the impact of bank liquidity risk and unemployment on credit risk in the South African banking sector. The panel data analysis approach is used, primarily employing the dynamic generalized method of moments model to examine 12 Banks in South Africa from 2009 to 2019. The results showed that credit risk is positively related to unemployment while, the relationship between credit risk and bank liquidity is negative in line with theory. The findings in this article may enhance bank policy formulation. Since credit and liquidity risk are a major source of risk that banks face especially in terms of stringent regulatory oversight and policy debate, this paper contributes significantly in the methods that central banks need to undertake to monitor and supervise the banking sector on liquidity and credit risks in time of crisis. Furthermore, employment is one critical economic fundamental in developing or emerging markets, the analysis of the nexus between employment and credit risk likewise provided important insights especially in time were the world is facing the COVID-19 pandemic.