Capital price distortion, financial leverage, and credit risk in commercial banks.

• Capital price distortion and financial leverage have a significantly positive impact on the NPL ratio of commercial banks. • Increasing the degree of capital price distortion and financial leverage leads to a higher NPL ratio. • Capital price distortion has a significantly positive impact on financial leverage, while capacity utilization has a significantly negative impact on financial leverage. This paper uses panel data from 30 provinces and cities from 2012 to 2022 (excluding Tibet, Hong Kong, Macao, and Taiwan), and empirically examines the impact of capital price distortion and financial leverage on the non-performing loan (NPL) ratio of banks by constructing a dynamic panel system GMM model. The study finds that capital price distortion and financial leverage have a significantly positive impact on the NPL ratio of commercial banks. Increasing the degree of capital price distortion and financial leverage leads to a higher NPL ratio. Further analysis reveals that capital price distortion has a significantly positive impact on financial leverage, while Overcapacity has a significantly negative impact on financial leverage. [ABSTRACT FROM AUTHOR]