Abstract
Due to their importance, commercial banks currently play a very important role in national financial systems. The profitability of commercial banks depends on how they manage their loans, and credit risk management is thus crucial in the banking system, risk management is significant activity of commercial bank. The main purpose of this study is to observe the extent to which bank profitability is dependent on credit risk management, with a focus on commercial banks in the Western Balkans (Kosovo, Albania, North Macedonia and Serbia). The results reveal a certain assured correlation among credit risk as well as the profitability of banks, where the ratio of non-performing loans (NLPR) has a positive effect on return on equity (ROE) and return on assets (ROA). Capital Insufficiency (CAR) shows that positive dependence is without any statistical significance on return on equity (ROE) and return on assets (ROA).
Highlights
Due to their importance, commercial banks currently play a significant role in national financial systems
In order to achieve the purpose of the study, we have put forward two hypotheses: H01- There is a correspondence among Capital Insufficiency - CAR, the ratio of non-performing loans - NLPR and return on Equity – return on equity (ROE), of commercial banks
As profit-related indicators, we have considered return on assets (ROA) and ROE, and as indicators of risk management, we used CAR and NPL
Summary
The countries of the Western Balkans (Kosovo, Albania, North Macedonia, and Serbia) are the countries that were part of the former Socialist Federal Republic of Yugoslavia. In Kosovo, Albania, North Macedonia, and Serbia, deposits are the primary sources of financing for commercial banks Lending in these countries increased rapidly, in the trade sector. The sensitivity of the credit risk management process is experienced by commercial banks operating in developing countries. Sakilu & Kibret (2015), in the study of financial performance in commercial banks, as a practice of Ethiopian internal governance, have concluded that employees with previous experience in banking, compensation, and risk management committee have adverse effects on performance For their successful performance, Russian banks applied a month ahead of their lending rates, compared to banks in other countries, which applied five months to respond to monetary policy (Nguyen, Khoi, & Williams, 2017). Financial statements remain one of the most useful and reliable tools for banking-risk analysis and assessment
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