Corporate Governance and Credit Risk in the Banking Sector

(Pages 347-350)

Rezart Dibra* and Ylber Bezo
University College of Business, Tirana Albania


Corporate governance and credit risk are very important for empirical analysis. Credit risk causes economic downturn as banks fail due to default risk from clients, which has had a negative impact on the economic development of many nations around the world (Reinhart & Rogoff, 2008). By definition, credit risk describes the risk of default by a borrower who fails to repay the money borrowed. The term hedging signals the protection of a business's investments by limiting its level of risk, for example, by purchasing an insurance policy. Diversification is the allocation of financial resources in variety of different investments and has also long been understood to minimize such risk. The capital adequacy ratio is a measure of a bank’s capital maintained to absorb its outlying risks. Since there is a lot of competition among banks to attract customers, therefore, it has triggered several innovations in banking services (Aruwa & Musa, 2014). Regulators also require banks to improve internal governance practices in order to ensure transparency and ethical standards to keep the customers satisfied with their products and services. Ambiguity in banks’ terms and conditions will make it difficult for customers to select financial products appropriate for their needs, whereas clear terms and conditions allow customers to be more satisfied with the bank’s performance (Ho & Yusoff, 2009). Customers expect the financial institutions to have strong policies that can safeguard their interests and protect them. Therefore, poor understanding of effective credit risk and the acceptable risk management strategies by bank managers poses a threat to the commercial banks advancement and customers’ interest. This study analyse the credit risk at the second level bank


Credit Risk, Bounds test, Wald test, Banking sector, Corporate governance, Corporate performance etc.

How to Cite:

Rezart Dibra and Ylber Bezo. Corporate Governance and Credit Risk in the Banking Sector. [ref]: vol.19.2021. available at:

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