Ownership Structure and Its Effect on Credit Risk: Empirical Evidence from the Banking Sector of Bangladesh

A well-functioning banking sector significantly impacts the growth and sustainability of an economy. However, commercial banks’ motives to generate more and more profits lead to risk-taking to cope with growth and sustainability. This study examines how ownership structures impact the risk-taking of commercial banks in Bangladesh. To address the impact of ownership structures on bank risk, this study encompasses 32 commercial banks from 2002 to 2020, opting for unbalanced panel data. The study adopts the two-step system generalised methods of moments (GMM), and Two-Stage Least Squares to investigate the empirical analysis. This research shows that ownership structures (INO, GPO, MNO) and ownership concentration negatively impact credit risk in Bangladesh. These results suggest that the chosen ownership models aid in decreasing credit risk and enhancing financial and operational stability. The approaches described in this study will strengthen the banking business by reconsidering the relationship between risk-taking and ownership structure, which has excellent value for bank executives, policymakers, regulators, financial professionals, academia, and society. The practical implications of this study provide stakeholders with valuable insights to make informed, strategic decisions in the banking sector.