An Empirical Analysis of Macroeconomic Determinants of Credit Risk in the Banking Sectors: Evidence from the BRICS Countries

Credit risk has been associated with systemic instability, as illustrated by notable crises such as the Asian fiscal crisis of 1997 and the global financial crisis of 2007-2008. This study empirically investigates the macroeconomic drivers of credit risk for BRICS countries using quarterly data for the period 2000 – 2021. To examine this relationship, a Markov Switching Model is employed. The results show that slower economic growth, rising inflation, an appreciating currency, and higher interest rates are associated with rising credit risk. The results also demonstrate that the effects of these macro determinants are not homogeneous across different regimes.