Abstract
The concept of credit risk management can be treated as the heart of any commercial banks. It plays the vital role in the performance of a financial institution as it analyzes credit worth ability of borrowers. Each loan without repayment decreases banks’ profit and equity, which in turn may result in bank failure if the bank cannot pay off its liabilities. In this paper, according to existing theoretical and empirical literature, the suitable system was defined for measuring credit risk management. Then, the effect of credit risk management on the profitability and survival of banks in Iran was investigated. For this purpose, model was estimated using panel data method and the financial statements of banks for the period 2005-2016. The results of the study showed that there was a significant relationship between risk management and profitability and bank survivability. The poor credit risk management reduces the profitability and survival of banks.
Highlights
In Iran, there are 34 banks with a mandate from the central bank and 5 credit institutions
Theory Credit Risk Management System of Banks Credit risk management in financial institutions has become crucial for the survival and growth of these institutions
The findings revealed that credit risk management had positive effects on profitability of commercial banks
Summary
In Iran, there are 34 banks with a mandate from the central bank and 5 credit institutions. Despite the fact that banks are required to design a credit risk management mechanism, the performance of most banks represents a weakness in this regard. For assessing the performance of banks, we use, Return on asset and survival index To design this mechanism, the latest published data by the Iranian Institute on banking network has been used for the period of 2006-2015. Poor loan quality starts from the information processing mechanism (Liukisila, 1996) and increases further at the loan approval, monitoring and controlling stages. This problem is magnified especially, when credit risk management guidelines in terms of policy and strategies and procedure regarding credit processing do not exist or are weak or incomplete. Information asymmetry may make it impossible to differentiate good borrowers from bad ones (which may culminate in adverse selection and moral hazards) and lead to huge accumulation of non-performing accounts in banks (Bester, 1994)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
