Abstract:
The purpose of this research is to examine the effect of monetary policy over the credit risk specifically with respect to Pakistan banking industry. There are basically three subcategories of banks’ credit irks such ascredit risk-taking, lending standards and default risk utilized to conduct this research. On the other hand, there is one subcategory of monetary policy such as short-term interest ratewhich has been used in this study. In the research, we have tried to prove the significant effect of monetary policythrough short-term interest rate over banks’ credit risk in the form of credit risk-taking, lending standards, and default risk. For the purpose of this study, a structured questionnaire has been developed and data was collected from different banking institutions of Pakistan. Afterwards, different hypothesis test has been applied on data gather from the respondents. Meanwhile, results have shown that there is an inverse relationship between short-term interest rate (monetary policy) and credit risk-taking, lending standards, and default risk (banks’ credit risk) in Pakistan. Several statistical instruments have been used such as descriptive frequencies, reliability, correlation, regression, ANOVA, and coefficients to conduct the analysis within this study. Conclusively, we can say that monetary policy through short-term interest rate does have strong effect on the banks’ credit risk in the form of credit risktaking, lending standards, and default risk within banking industry of Pakistan.
