PERTANIKA JOURNAL OF SCIENCE AND TECHNOLOGY

This study examines the effect of growth of public listed banks in Asia Pacific and their credit risks during 2005-2015. Using random effect estimation, evidence shows the effect of loan growth on credit increase in low middle- income countries during pre- and post-crises. This finding implies the possibility of moral hazard hypothesis in the banking sector. Furthermore, bank inefficiency contributes to the rise in credit risk, except in low middle-income countries. This supports bad management hypothesis, where the bank's inability to reduce their inefficiency worsens credit risk. There is significant impact of loan loss provision and exchange rate on increases in credit risk. In addition, credit risk is also affected significantly by gross domestic product (GDP) in high-income and high middle-income countries. It is recommended the government improves its economic performance to reduce non-performing loans (NPL). These results highlight the importance of a study risk management policy and an effective cost management system to evaluate banking performance.