Credit Risk and Its Consequences on Bank Performance

Abstract

Determining the stability and soundness of the financial system has depended heavily on credit risk. Due to the Islamic banking systems increasing importance, fierce competition between Islamic and conventional banks has started to emerge, which is having an impact on both banking systems' credit riskiness and performance. It can be said that credit risk is the dominant risk that bank should encounter first and it have been proved from the implementation of Basel I in handling credit risk at first. Therefore, the objective of this study is to discuss the consequences of credit risk on bank performance. The study using qualitative as a method of analysis. Expected findings of this study revealed that the consequences of credit risk will affect the bank performance especially regarding the non-performing loan, credit interest and leverage ratio. This study will help researchers and banks to focus on credit risk management and to emphasize the importance of credit risk management towards bank performance.