THE IMPACT OF NON-PERFORMING DEBTS ON BANKING PERFORMANCE: AN ANALYTICAL STUDY OF THE MIDDLE EAST BANK AND THE IRAQI INVESTMENT BANK

Abstract

Purpose: The research aims to study the practical measurement of non-performing debt risks on banking performance and present the results, which provide valuable financial information to bank users and decision-makers. Theoretical framework: The theoretical framework of this research involves categorizing loans encountered by banks to identify non-performing and written-off loans resulting from credit risks. It also seeks to understand how to address non-performing loans to prevent financial distress that banks might face as a result, thus enhancing the value of accounting information derived from the banking accounting system. Method/design/approach: In this study, banking credit risks are measured using indicators based on the primary financial statements of the Middle East Bank and the Iraqi Investment Bank for the period from 2005 to 2008. Results and conclusion: The study indicated that the importance of financial disclosure is increasing, especially in the context of the banking sector, given the complexity of financial instruments such as derivatives and securities, their significant trading volume, and the associated risks. Research implications: The research results revealed that banks do not disclose the reasons behind financial distress, represented by credit risks and non-performing loans, nor do they disclose the quality of banking credit, loan classifications based on due dates, and how to calculate provisions for doubtful loans. Originality/value: The analysis sheds light on the relationship between non-performing debt risks and banking performance through the process of analyzing banking credit risks. Banking credit risks are among the most significant risks faced by commercial banks, as they arise from the probability of customers not meeting their obligations on their due dates, leading to potential losses for the banks.