Investigating the Impact of Foreign Bank Penetration and Banking Competition on Credit Risk in banking system Case study: Asian countries

The present study aims to investigate the effect of Foreign Bank Penetration and Banking Competition on credit risk in the banking system. In this regard، using a set of data taken from the Global Financial Development Database provided by the World Bank and the availability of data, 42 Asian countries during the 1999-2019 period as a research sample and using the correlation method through panel econometric models. The results showed: There are complex relationships between foreign bank penetration، competition and credit risk in banking، depending on the measurement of foreign bank penetration and competition. the increased number of foreign banks، not higher foreign banks’ assets، contribute to alleviating nonperforming loans and bank credit risk. However، the negative relationship between the number of foreign banks and nonperforming loans and credit risk is conditional on the measurement of the country's bank competition. The concentration and market power in banking exhibit a different impact on bank credit risk، particularly when both variables are interacted with foreign bank penetration. The increased presence of foreign banks is therefore detrimental for bank-asset quality in countries، particularly when the banking market is highly concentrated. The increased presence of foreign banks can reduce nonperforming loans when the bank is too concentrated. Therefore, providing incentives for the banking industry to avoid cross-selling strategies in boosting noninterest income is also worth considering, given the fact that changes in nonperforming loans due to foreign penetration and competition in banking can be partly explained by changes in noninterest income