Abstract
The main aim of this study is to investigate the effect of credit risk management on the shareholder value in listed commercial banks in Sri Lanka. The research has used only the secondary data for the purpose of analysis and the sources of data include the annual reports of selected quoted public banks. This study employed return on shares to measure the shareholder value while non-performing ratio, Capital adequacy ratio and Loans to deposits ratio have been used as the indicators of the credit risk management of the banks. Regression models were employed to do the empirical analysis and focuses on the descriptions of the output obtained from the SPSS. The findings reveal that credit risk management has a significant effect on shareholder value in all eight banks. Among the three credit risk management indicators, NPLR has the most significant effect on the return on shares. Through the results of the study it can be concluded that null hypothesis can be rejected since there is a significant relationship between credit risk management and shareholder value.
Highlights
Main function of a bank is to accept deposits and make loans, and a profit will be earned through the difference in the interest paid and interest charged to depositors and borrowers respectively
The main aim of this study is to investigate the effect of credit risk management on the shareholder value in listed commercial banks in Sri Lanka
This study employed return on shares to measure the shareholder value while non-performing ratio, Capital adequacy ratio and Loans to deposits ratio have been used as the indicators of the credit risk management of the banks
Summary
Main function of a bank is to accept deposits and make loans, and a profit will be earned through the difference in the interest paid and interest charged to depositors and borrowers respectively. This process is known as financial intermediation by banks taking in funds from customers / depositors and lending them to borrowers. Majority of the collected deposits will be transmitted to people in need of funds through micro lending, mortgages, small and long term loan, auto finance facility, etc. (2012) defines credit risk as the potential that a bank borrower or counterparty will fail to meet its obligation in accordance with agreed terms Due to the mention credit operations banks are exposed to credit risks. Fredrick O. (2012) defines credit risk as the potential that a bank borrower or counterparty will fail to meet its obligation in accordance with agreed terms
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