Risk Governance, Board Diligence, and Non-Performing Loan Dynamics in Emerging Economies: A Systematic Analysis
DOI:
https://doi.org/10.63084/econova.v1i2.66Keywords:
credit risk, stress testing, macroeconomic shocks, probability of default, scenario analysisAbstract
The escalation of non-performing loans (NPLs) in emerging economies remains a persistent challenge that threatens financial stability and constrains economic development. This paper examines the relationship between board governance mechanisms, particularly board diligence measured through meeting frequency and oversight intensity, and NPL dynamics in emerging market banking systems. Drawing on agency theory and empirical evidence from African, Asian, and Middle Eastern banking sectors, the analysis demonstrates that board governance effects on credit risk and NPL levels are context-dependent and mechanism-specific. While board financial expertise, independent audit committees, and targeted oversight structures consistently reduce NPLs and enhance provisioning discipline, aggregate board meeting frequency shows mixed effects across jurisdictions. The findings reveal that governance intensity influences loan monitoring quality, provisioning credibility, and investor confidence during macroeconomic stress, but effectiveness depends critically on board composition, ownership structure, and institutional enforcement capacity. The paper contributes to the literature by synthesizing recent empirical evidence on governance-NPL linkages and by demonstrating that enacted governance, characterized by substantive oversight rather than symbolic compliance, constitutes the mechanism through which board diligence affects credit risk outcomes. Implications for banking regulators, board practitioners, and investors in emerging economies are discussed.
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