The relationship between credit risk management and non-performing assets of commercial banks in India

2019 ◽  
Vol 45 (3) ◽  
pp. 399-412 ◽  
Author(s):  
Sirus Sharifi ◽  
Arunima Haldar ◽  
S.V.D. Nageswara Rao
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Management Practices ◽  
Primary Data ◽  
Credit Risk Management ◽  
Content Type ◽  
Indian Economy ◽  
Indian Banks ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of credit risk components on the performance of credit risk management and the growth in non-performing assets (NPAs) of commercial banks in India. Design/methodology/approach The data are obtained from primary and secondary sources. The primary data are collected by administering questionnaire among risk managers of Indian banks. The secondary data on NPAs of Indian banks are from annual reports and Prowess database compiled by the Centre for Monitoring Indian Economy. Multiple linear regression is used to estimate the models for the study. Findings The results suggest that the identification of credit risk significantly affects the credit risk performance. The results are robust as credit risk identification is negatively related to annual growth in NPAs or loans. There is evidence in support of a priori expectation of better credit risk performance of private banks compared to that of government banks. Practical implications The study has implications for Indian banks suffering from a high level of losses due to bad loans. In addition, it will have implications for the implementation of new Basel Accord norms (Basel III) by the Reserve Bank of India. Social implications The high and rising level of NPAs will have adverse consequences for credit flow in the economy in the absence of appropriate intervention by government and central bank in the form of changes in institutional and regulatory infrastructure. The problems in banking and financial services sector will lead to lower industrial and aggregate economic growth, and lower (or negative) growth in employment. Originality/value There is little evidence on credit risk management practices of Indian banks, and its relationship with credit risk performance and NPA growth. The need for an effective risk management system to manage credit risk assumes importance and urgency in the context of high and rising NPAs of Indian banks, and the consequences for the Indian economy.

An Investigation of Credit Risk Management Strategies of Private Commercial Banks of Bangladesh

2014 ◽  
Vol 2 (2) ◽  
pp. 77-87
Author(s):  
Abu Hanifa Md. Noman ◽  
Md. Amzad Hossain ◽  
Sajeda Pervin
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Management Practices ◽  
Management Practice ◽  
Management Strategies ◽  
Third Party ◽  
Primary Data ◽  
Credit Risk Management ◽  
Risk Management Strategies

Objective - The study aims to investigate credit risk management practices and credit risk management strategies of the local private commercial banks in Bangladesh. Methodology -The investigation is conducted based on primary data collected from a set of both closed end and open end questionnaire from 23 out of 39 local private commercial banks in Bangladesh. Descriptive statistics has been used in processing the data and interpreting the results. Findings - The results reveal that credit risk management practice of the sample banks is sound which is attributed to the appropriate implementation of Basel II and credit risk management guidelines the country's central bank. The findings further show that use of Credit risk grading is most popular and effective criteria for measuring the borrowing capacity of the borrowers. In order to control credit risk and preventing losses from credit exposure banks give more focus on collateralization, accurate loan pricing and third party guarantee. Loan is monitored properly and credit reminder is given to the client if principal and interest remain outstanding for three months. The study further reveals that lack of experienced and trained credit officers, lack of genuine market information and Lack of awareness regarding non-genuine borrower are the most important problems of current credit risk management practices in Bangladesh. Novelty - To the best of the knowledge of the authors the study is the first that investigates credit risk management strategies of private commercial banks, especially on Bangladesh. Type of Paper - Empirical Keyword : Bangladesh; Commercial Bank; Credit risk; Credit risk management; Credit risk management strategies.

scholarly journals Credit Management and Issues of Bad Debts: An Empirical Study of Listed Deposit Banks in Nigeria

2020 ◽  
pp. 32-49
Author(s):  
Peter E. Ayunku ◽  
Akwarandu Uzochukwu
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Random Effect ◽  
Credit Risk Management ◽  
Loan Loss ◽  
Data Set ◽  
Credit Management ◽  
Loan Loss Provision ◽  
The Impact

This study examines the impact of credit management on firm performance amidst bad debts, among Nigerian deposit banks. Five hypotheses were formulated following the dependent variables of Return on Asset and Tobin Q. The independent variables employed for this study include: Loan Loss Provision, Loan to Deposit Ratio, Equity to Asset Ratio, and Loan Write off. This study is based on ex-post facto research design and employed a panel data set collected from fourteen (14) commercial banks over six years ranging from 2014 to 2019 financial year. We analyzed the data set using descriptive statistics, correlation and Ordinary Least Square Regression Technique. The random effect models established that non-performing loan, loan loss provision and equity to asset impact significantly on banks’ performance in both Return on Asset and Tobin-Q models. This suggests that the sampled banks need to establish efficient arrangements to deal with credit risk management. In all, credit risk management indicators considered in this research are important variables in explaining the profitability of Nigerian commercial banks. However, based on the outcome from the empirical analysis, the study carefully recommends that investors and shareholders in these banks should be aware of the possible use of provisions for losses on non-performing loans by managers for smoothening of profits. The shareholders specifically should be ready to meet optimal agency costs to reduce the manager's information asymmetry by hiring competent internal and external auditors.

Credit Risk Management of Commercial Banks in Nepal

2019 ◽  
Vol 4 (1) ◽  
pp. 27-37
Author(s):  
Shreya Pradhan ◽  
Ajay K. Shah
Keyword(s):  
Risk Assessment ◽  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Management Practices ◽  
Risk Mitigation ◽  
Mitigation Measures ◽  
Credit Risk Management ◽  
Loan Repayment ◽  
Credit Risk Assessment

The study is primarily focused on credit risk assessment practices in commercial banks on the basis of their internal efficiency, assessment of assets and borrower. The model of the study is based on the analysis of relationship between credit risk management practices, credit risk mitigation measures and obstacles and loan repayment. Based on a descriptive research approach the study has used survey-based primary data and performed a correlation analysis on them. It discovered that credit risk management practices and credit risk mitigation measures have a positive relationship with loan repayment, while obstacles faced by borrowers have no significant relationship with loan repayment. The study findings can provide good insights to commercial bank managers in analysing their model of credit risk management system, policies and practices, and in establishing a profitable and sustainable model for credit risk assessment, by setting a risk tolerance level and managing credit risks vis-a-vis the prevailing market competition.

Credit risk management of Ghanaian listed banks

2016 ◽  
Vol 58 (2) ◽  
pp. 162-178 ◽  
Author(s):  
Michelle Ayog-Nying Apanga ◽  
Kingsley Opoku Appiah ◽  
Joseph Arthur
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Management Practices ◽  
Banking Sector ◽  
Banking Industry ◽  
Credit Risk Management ◽  
Structured Interviews ◽  
Content Type ◽  
Credit Risks ◽  
Commercial Loans

Purpose – The study aims to assess credit risk management practices within financial institutions in Ghana. Specifically, the study compares credit risk management practices of listed banks in Ghana with Basel II (1999). Design/methodology/approach – The analysis is based on data gathered from varied sources, namely, use of questionnaires, analysis of internal credit policies and procedure manuals and semi-structured interviews and discussions with credit risk managers of the selected banks in May 2007 and October 2014. Findings – Overall, the credit risk management practices within listed banks in Ghana are in line with sound practices. The only dissimilarity, however, is the role of the board of directors in defining acceptable types of loans and maximum maturities for the various types of loans. The listed banks in Ghana are also exposed to credit risks associated with granting both corporate and small business commercial loans and the use of collaterals to mitigate their credit risk exposures. Practical implications – Banks in Ghana should consider developing the skills of all their personnel and appropriately motivating those involved in the credit risk management processes to ensure that they carry out this process efficiently. Originality/value – Research into credit risk management in the banking industry from the Ghanaian perspective remains scant. This study is, therefore, timely, and its findings are invaluable for the efficient management of credit risk in the banking industry. This study provides policy recommendations which will enhance shareholder value and, in this way, contribute to greater stability in the banking sector in developing countries, in particular.

scholarly journals Does Credit Risk Management affect the Financial Performance of Commercial Banks in Kosovo?

2018 ◽  
Vol 7 (2) ◽  
pp. 49-57
Author(s):  
Rrustem Asllanaj
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Financial Performance ◽  
Multiple Regression ◽  
Commercial Banks ◽  
Multiple Regression Model ◽  
Capital Adequacy ◽  
Regression Equations ◽  
Credit Risk Management ◽  
The Impact

This study analyses the impact of credit risk management on financial performance of commercial banks in Kosovo, and comparing the relationship between the determinants of credit risk management and financial performance by using CAMEL indicators. Panel data of 85 observations from 2008 to 2012 of ten commercial banks was analysed using multiple regression model. Findings through multiple regression analysis are presented in forms of tables and regression equations. The study also elaborates whether capital adequacy, asset quality, management efficiency, earnings and liquidity have strong or weak relationship with financial performance of commercial banks. The study concludes that CAMEL model can be used as a system of assessment and rating of credit risk management by commercial banks in Kosovo.

scholarly journals THE EFFECT OF OPERATIONAL RISK MANAGEMENT PRACTICES ON THE FINANCIAL PERFORMANCE IN COMMERCIAL BANKS IN TANZANIA

2016 ◽  
Vol 1 (1) ◽  
pp. 29
Author(s):  
Kerongo Maatwa Meshack ◽  
Rose Wairimu Mwaura
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Financial Performance ◽  
Commercial Banks ◽  
Management Practices ◽  
Operational Risk ◽  
Operational Efficiency ◽  
Primary Data ◽  
Operational Risk Management ◽  
Insolvency Risk

Purpose: The purpose of the study was to determine the effect of operational risk management practices on the financial performance in commercial banks in TanzaniaMethodology: The research problem was studied by use of a descriptive research design. The population of the study consisted of all commercial banks in Tanzania. The study used the sample size of 34 commercial banks in Tanzania. Therefore all the commercial banks participated in equally. Questionnaires were the primary data collection tool in this study. The data gathered from the respondents shall be analyzed and presented using descriptive statistics.Results: The study found that the three independent variables in the study credit risk, Insolvency risk and Operational efficiency influenced the financial performance for the period under study. Credit risk Insolvency risk   and Operational efficiency influenced commercial banks financial performance for the period of study.Unique contribution to theory, practice and policy: This study therefore recommends that the commercial banks should handle their operations appropriately as the changes in the factors like Insolvency and Credit risk bring about an effect on the profitability of commercial banks hence affecting their financial performance

scholarly journals Credit risk management

2018 ◽  
Vol 10 (2) ◽  
pp. 185-205
Author(s):  
Hassan Akram ◽  
Khalil ur Rahman
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Banking Industry ◽  
Negative Impact ◽  
Descriptive Analysis ◽  
Secondary Data ◽  
Credit Risk Management ◽  
Content Type ◽  
The Impact ◽  
Better Than

PurposeThis study aims to examine and compare the credit risk management (CRM) scenario of Islamic banks (IBs) and conventional banks (CBs) in Pakistan, keeping in view the phenomenal growth of Islamic banking and its future implications.Design/methodology/approachA sample of five CBs and four IBs was chosen out of the whole banking industry for the study. Secondary data obtained from the banks’ annual financial reports for 13 years, starting from 2004 to 2016, were analyzed. Multiple regression, correlation and descriptive analysis were used in the examination of the data.FindingsThe results show that loan quality (LQ) has a positive and significant impact on CRM for both IBs and CBs. Asset quality (AQ), on the other hand, has a negative impact on CRM in the case of IBs, but has a significantly positive relation with CRM in the case of CBs. The impact of 16 ratios measuring LQ and AQ have also been individually checked on CRM, by making use of a regression model using a dummy variable of financial crises for robust comparison among CBs and IBs. The model proved significant, and CRM performance of IBs was observed to be better than that of CBs. Moreover, the mean average value of financial ratios used as a measuring tool for these variables shows that the CRM performance of IBs operating in Pakistan was better than that of CBs over the period of the study.Practical implicationsThe research findings are expected to facilitate bankers, investors, academics and policy makers to build a better understanding of CRM practices as adopted by CBs and IBs. The findings would be useful in formulating policy measures for the progress of the banking industry in Pakistan.Originality/valueThis research is unique in terms of its approach toward analyzing and comparing CRM performance of CBs and IBs. Such work has not been carried out before in the Pakistani banking industry.

scholarly journals The Impact of Credit Risk Management on the Moroccan Commercial Banking Sector

2021 ◽  
Vol 11 (4) ◽  
pp. 5713-5724
Author(s):  
Fatima Bellaali ◽  
Abdelhamid Al Bouhadi
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Management Practices ◽  
Banking Sector ◽  
Commercial Banking ◽  
Credit Risk Management ◽  
Loan Portfolios ◽  
Market Requirements ◽  
The Impact ◽  
Different Sources

The study aimed to analyze the credit risk management practices that the commercial banking sector in Morocco is committed to and their impact on the banking sector.Accordingly, the study reached many conclusions about the importance of applying the mechanism of transferring risks into credit opportunities in the market, which can be achieved through diversifying the bank’s revenue schemes in an optimal manner and correct compatibility with market requirements, which allows the bank to use different sources of interest and fees granted from other areas of service that provided by the Bank, rather than focusing primarily on loan portfolios. In addition, the study highlighted the importance of the relevant specialist within the Bank to deal with more macroeconomic research. Designed for market-based economies, other than adopting credit trend analysis alone, therefore, depreciation of bank assets comes from a variety of market drivers, which have a fundamental role in influencing the credit capabilities of the bank.

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