Credit Risk Management as an Investment Risk Strategy and Its Implications for Bank Stability

Abstract

This study conceptually examines the role of credit risk management as an investment risk strategy and its implications for bank stability. Credit provision represents a core form of investment decision-making in the banking sector, exposing banks to significant risk–return trade-offs. Among these risks, credit risk is dominant because it directly affects asset quality, liquidity, and financial resilience. This study adopts a qualitative Systematic Literature Review (SLR) approach to synthesize recent academic and policy-oriented literature on credit risk, non-performing loans, and financial stability. By integrating findings from banking, financial stability, and risk management research, the review explains how credit risk management practices such as credit quality monitoring, portfolio diversification, and risk-taking control function as mechanisms for mitigating investment risk in banking. The findings indicate that effective credit risk management is central to preserving the quality of banks’ investment portfolios and strengthening resilience to economic shocks. Conceptually, the study highlights that credit risk management should be understood not only as a risk control function but also as a strategic component of stability-oriented banking investment decision-making.