Examining the Determinants of Credit Risk Management and Their Relationship with the Performance of Commercial Banks in Nepal

Abstract

In recent years, after the global financial crisis, the issue of credit risk management has received increased attention from international regulators. Credit risk management frameworks are often not sufficiently integrated within the organization, there is no unified approach, and there is no holistic view of all risks. Likewise, where they exist, sound risk management practices have helped institutions to weather financial crises better than others. Therefore, the current study aimed to examine the determinants of credit risk management and their relationship with the performance of commercial banks in Nepal. It also examines the mediating role of credit risk management on the performance of commercial banks in Nepal. The results indicate that there is a positive relationship between environmental risk and credit risk management. It is also found that credit appraisal measurements have a significant effect on credit risk management. The results reveal that market risk analysis has a significant effect on credit risk management. The results show that credit risk management mediates the relationship between environmental risk, credit appraisal measurements, market risk analysis, and the performance of commercial banks. Therefore, managers should strive to impart risk prevention and control mechanisms to reduce credit risk and achieve good financial performance.