The Effect of Credit Risk Management and Capital Adequacy on Financial Performance of Business Banks

Abstract

The main purpose of the research to study the effect of credit risk management and capital adequacy on financial performance of business banks from 2009 to 2014. The statistical population of the research is all state and private banks and final sample volume is 25 banks based on available information. In this research, amount of loans, previous maturity of credits, loss reserve on loans and previous maturity of credits, liquidity ratio and capital adequacy of banks were used to study their effects on the performance of banks (return on asset). The results of data analysis using multivariate - linear regression at 95% confidence level indicated that there is a negative relationship between loss reserve on loans and previous maturity of credits and banks’ performance. On the other side, the results indicated that there is a positive relationship between liquidity ratio and capital adequacy ratio with banks’ performance.Keywords: Credit Risk, Capital Adequacy, Financial Performance, Return of Assets