Impact of Credit Risk Management on Banks Performance: A Case Study in Pakistan Banks

Abstract

This study captured the impact of credit risk management on performance of commercial banks in Pakistan. A fundamental research proposal was accepted in this study, and this was facilitated by the use of secondary data which was obtained from the SBP publications on banking sector survey, official websites and KSE. The pooled regression has been adopted to determine the impact of credit risk management on two performance methods. The findings revealed the fact that credit risk management is inversely associated with bank performance. For return on asset (ROA) analysis revealed that capital adequacy ratio (CAR), Loan loss provision ratio (LLPR), liquidity ratio (LR) and Non-performing loan ratio (NPLR) variables have significant impact on return on assets (ROA). The Loan loss provision ratio (LLPR), liquidity ratio (LR) and Non-performing loan ratio (NPLR) have negative while the capital adequacy ratio (CAR), loan and advances (LAR), and SIZE have positive impact on the return on assets.In relation to return on equity , the CAR, LAR and LLPR variables have significant impact on ROE. In this model the LLPR, NPLR and LR variables have negative and CAR, LAR and SIZE variables have positive impact on the dependent variable.

Keywords: credit risk management, financial performance, commercial banks.