Abstract
The main objective of this study is to investigate whether the credit risk management of Pakistan's commercial banks listed on the Pakistan Stock Exchange is linked to financial performance. For this purpose, the researchers have attempted to analyze the data trends of five major banks of Pakistan as a proxy representation of the entire banking sector of Pakistan. Five (5) years of panel data collected from the State Bank of Pakistan Annual publication and annual reports of respective banks was used to conduct the research. The study found that underperforming Credit Risk Management (CRM) loans and Capital Adjustment Ratios (CDRs) have an impact on the financial achievement of Pakistani commercial banks as measured by return on equity (ROE) and return on assets. For panel data analysis, inferential statistics (regression models) were used in this study. After analyzing the data, the researcher found that CRM has a significant impact on the financial performance of Commercial Banks of Pakistan. Furthermore, the researcher encourages the Pakistani banks to grow their profitability in terms of better CRM. Pakistan's banking sector must develop suitable CRM strategies and policies through a sound credit appraisal before lending to consumers and banks; an appropriate CRM mechanism must be developed, and the credit awards system must be thoroughly reviewed, properly informed and used to repay loans. Pakistani Banks would develop and implement strategies to improve their performance & competitiveness as well as limit their lending risk exposure.
Highlights
Banks are exposed to various business risks by providing financial services and other related matters exposed to some financial risks including foreign exchange risk, volatility risk, operation risk, and credit risk, etc. (Alloyo, 2010)
Pit stands as a test of profitability for financial performance by trustworthy variables (ROA, return on equity (ROE)). 1NPLRit is the first independent bank I loan risk management variable at times t and 2CARit is the second independent bank I loan risk management variable at times t. 0 is a permanent representational variable
Banks must deal with a variety of dangers because the risk is inherent in banking operations, the most serious of which is credit risk
Summary
Banks are exposed to various business risks by providing financial services and other related matters exposed to some financial risks including foreign exchange risk, volatility risk, operation risk, and credit risk, etc. (Alloyo, 2010). A recent study by Sleimi (2020), emphasized that the components of risk management procedures had a good and significant influence on bank performance. These assertions have been extensively validated in the western contexts and emphasize the need for risk management in the diverse banking environment. Banks’ management manages their various cash measurement tools to meet their daily financial requirement In this essence Yusuf (2003) suggested that banks and financial institutions are facing various risks. These risks include interest rate risk, foreign exchange, political risk, market risk, operation risk, and credit risk (Cooperman, Gardener & Mills 2000). According to Harvett (2013), risk management is a continuous process that helps in minimizing the bad impact of unknown possible losses
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