Impact of credit risk management on profitability

Banks collect deposits and lends to customers but when customers fail to meet their obligations problems such as non-performing loans arise. This study evaluates the impact of credit management on financial performance of Nigerian banks, with particular reference to UBA Plc. Financial ratios as measures of bank performance and credit indicators were the data collected from secondary sources mainly the annual reports and accounts of sampled banks from - Descriptive, correlation and regression techniques were used in the analysis.

Impact of credit risk management on profitability

Cite Harvard Juliana, S. Journal of International Business Research and Marketing, 2 3pp.

Impact of credit risk management on profitability

Journal of International Business Research and Marketing, 2 3 Journal of International Business Research and Marketing. Chicago Juliana, Stanley Isanzu. The study aim was to empirically examine the impact of credit risk on the financial performance of Chinese banks.

Secondary data was collected from five largest commercial banks in the country for the period of 7 years from to The study used nonperforming loans, capital adequacy ratio, impaired loan reserve, and loan impairment charges as measures of credit risk and for a measure of financial performance return on asset was used.

Data analysis was done using a balanced panel data regression model, and the study findings reveal nonperforming loan and Capital adequacy have a significant impact of on financial performance of Chinese commercial banks; therefore, the need to control credit risk is crucial for bank financial performance.

Introduction The Management of the risk-return tradeoff is imperative for the banks to maintain their profitability. Since their core activity is credit creation, this renders credit risks inevitable. As a result, credit risk is among the core risks related to the bank main income generation activity.

According to a Feb. It should be noted that it is an established fact in many literature of banking that the losses of many banks are a result of the Non-Performing Loans.

It is also evident that the financial crisis which occurred in the US in the late s and spread in most parts of the world was indeed a result of default on loans and mortgages. Although, the major causes of bad debts are the failure of borrowers to pay back, which is often caused by the uneconomic use of loans, high-interest rate and low per capita income.

Hence, it is clear why banks need to manage credit risk which is mainly from NPLs as it is very crucial for banks survival and profitability.

Related information

Credit risk according to Basel Committee of Banking Supervision BCBS is the possibility of losing the outstanding loan partially or totally, due to credit events default risk. Basel Committee on Banking Supervision- BCBS defined credit risk as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms.

Banks generate income mainly through credit creation, which also results in huge risks to the lender and the borrower. The smooth functioning of the bank can be greatly jeopardized by a failure of the trading partner to fulfill their contractual obligation in due date. A bank with a high credit risk has high bankruptcy risk that puts the depositors in jeopardy.

Interest rates charged by banks are fast overtaken by inflation and borrowers find it difficult to repay loans in unstable economic environments because real income falls, leading to increased insider loans and over-concentration in certain types portfolios giving rise to credit risk.

But in a bid to survive and maintain profits in this highly competitive environment, banks have the tendency to take unnecessary risks.behavior and credit risk, and asks whether the trend of credit risk has any impact on bank lending behavior.

The current financial crisis, which started in , is an example of what can go. of real credit growth on banks™ credit risk and profitability is in line with the view that difficulties in monitoring bank performance can lead banks to weaken their credit standards in times of rapid expansion of aggregate credit.

lausannecongress2018.com Measuring Lending Profitability at the Loan Level: An Introduction FINANCIAL PERFORMANCE Loan loss provision (credit risk): The ultimate goal here is to ensure that the bank is being adequately compensated for the risks it is taking in its lending business.

Achieving the stated purpose would entail reviewing the current credit risk management of these banks over a certain period of time and comparing them to profitability at the same period of time, in order to ascertain the effect that risk management practices have on eventual profitability. of asset and liability flows reduces the liquidity risk, but also its profitability. This relationship loans in an irregular situation will impact jointly on profitability and liquidity, as the expected cash flows do not appear. In addition, there is a for Market Risk, Credit Risk Management Committee for Credit Risk and Operational. enhancement of bank profitability in those countries requires new standards in risk management and operating efficiency, which, according to the evidence presented in the paper, crucially affect profits.

interest income have positive effect on the bank's profitability, but credit risk and loans have a negative effect on the bank's profitability. Regarding to macroeconomic .

This study examines the impact of credit risk management on profitability of Nepalese commercial banks. The profitability in terms of return on assets and . Achieving the stated purpose would entail reviewing the current credit risk management of these banks over a certain period of time and comparing them to profitability at the same period of time, in order to ascertain the effect that risk management practices have on eventual profitability.

The Impact of Credit Risk on the Financial Performance of Chinese Banks - Research leap