Credit Risk and Financial Performance of Banks: Evidence from Pakistan

This paper examines the relationship between credit risk and financial performance of commercial banks of Pakistan. The crucial function of banks is to manage and deal with their credit risk to minimize the credit losses and to maximize profit. For this purpose, Return on Assets (ROA), Return on Equ...

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Bibliographic Details
Published in:NUML international journal of business & management 2019-06, Vol.14 (1), p.144-155
Main Authors: Shahid, Muhammad Sadiq, Gul, Faid, Naheed, Khawar
Format: Article
Language:English
Subjects:
Bank management
Banking industry
Business administration
Commercial banks
Credit departments
Credit policy
Credit risk
Financial institutions
Interest rates
Loan agreements
Loan approval procedures
Loan workouts
Profitability
Profits
Return on assets
Stockholders
Theory
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Summary:This paper examines the relationship between credit risk and financial performance of commercial banks of Pakistan. The crucial function of banks is to manage and deal with their credit risk to minimize the credit losses and to maximize profit. For this purpose, Return on Assets (ROA), Return on Equity (ROE), Non-performing Loans (NPL) and capital adequacy ratios have been used. The data has been collected from 24 banks operating in the Pakistan for the period 2010-2017. This study evidenced significant relationship of credit risk through (leverage, non-performing loans and provision for facilities ratios) on the financial performance of banks. The result showed that credit risk is the main parameter for the ascertainment of financial performance of banks. The findings of this research proved that risk regarding credit greatly affects the financial performance of Pakistani commercial banks. Credit risk helps management find systematic solutions for the financial sector that can enhance the performance of banks.
ISSN:2410-5392
2521-473X