scholarly journals Credit Risk and Profitability of Commercial Banks in Pakistan

2020 ◽  
Vol V (I) ◽  
pp. 75-89
Author(s):  
Sohail Farooq ◽  
Raza Muhammad Khan ◽  
Muhammad Akram Gilal
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
Banking Sector ◽  
Sufficient Evidence ◽  
Loan Loss ◽  
Loan Portfolio ◽  
Loan Loss Provisions ◽  
Bank Managers ◽  
Credit Portfolio ◽  
The Relationship

Credit risk in the credit portfolio of financial institutions has dented their profitability. This study examines the relationship between credit risk and profitability of commercial banks in Pakistan. For this purpose three performance measuresROA, ROE, and NIM are used by the study. To test the relationship and impact over the period 2006-2015 the study involved 28 commercial banks. During the period under investigation, the findings of the study reveal that credit risk, represented by loan loss provisions, has a meaningful effect on the profitability measures. The findings provide exciting insights into the influence of credit risk, besides other variables in the study, on the selected commercial banks profitability inside Pakistan, for bank managers, and foremost for policymakers. The study also has policy relevance in the form of providing policymakers sufficient evidence related to the presence of credit risk in the loan portfolio of the banking sector and the ways to overcome this chronic problem.

scholarly journals The Relationship between Credit Risk Management and Profitability between Investment and Commercial Banks in Palestine

2015 ◽  
Vol 7 (11) ◽  
pp. 163
Author(s):  
Mohammed Bayyoud ◽  
Nermeen Sayyad
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Regression Model ◽  
Commercial Banks ◽  
Banking Sector ◽  
Structured Interview ◽  
Investment Banks ◽  
Credit Risk Management ◽  
Bank Managers ◽  
The Relationship

<p>Credit risk management is one of the vital aspects of the financial institutions regardless of their nature. For a more comprehensive analysis of Palestine banking sector, investment and commercial banks both were chosen for assessing the relationship between credit risk management and profitability. Explanatory design of study helped in assessing the casual effect relationship between the research variables. The regression model was used for gathering quantitative findings while structured interview from bank managers was selected for gathering qualitative data. The findings of the regression model in the current study confirmed that there is no consequence of credit risk on profitability of commercial and investment banks of Palestine. Additionally, it was also found that there is no difference between the Palestinian commercial and investment banks concerning the relationship.</p>

scholarly journals Analysis of the Relationship between Credit Risk and Bank Performance of Some Commercial Banks in Ghana

2020 ◽  
Vol 8 (2) ◽  
pp. 34-51
Author(s):  
Joseph Acquah ◽  
Yusif Arthur ◽  
Damianus Kofi Owusu
Keyword(s):  
Credit Risk ◽  
Commercial Bank ◽  
Commercial Banks ◽  
Quantitative Research ◽  
Banking Sector ◽  
Sampling Technique ◽  
Capital Adequacy ◽  
Research Approach ◽  
Independent Entity ◽  
The Relationship

This study analysed the relationship between credit risk and bank financial performance of selected commercial banks in Ghana for the period 2010 - 2014, using the banks respective financial statements. The study employed the quantitative research approach. The sample was Ghana Commercial Bank Limited, Zenith Bank Limited, UT Bank and Ecobank Plc. These four banks were selected using stratified random sampling technique. The data were primarily secondary and quantitative in nature. Both descriptive and inferential statistics were used to analyse the data. When the banks were compared, Ghana Commercial Bank Limited was found to be more liquid than Zenith Bank Limited. That of Zenith bank was also higher than UT bank and Ecobank Plc .However, profitability indicators showed that Zenith Bank Limited and Ecobank Plc utilised its assets better than Ghana Commercial Bank Limited and UT bank resulting in the two banks higher scores over the period. The findings show further that Ghana Commercial Bank Limited showed higher ratios for investment in the future while Zenith Bank Limited showed higher ratios of higher dividend immediately. However, Zenith Bank Limited capital adequacy level was far higher than the legal requirement of Banking sector while its counterparts fell slightly below it in terms of average. Based on the main findings and conclusions, it is recommended that Ghana Commercial Bank Limited should find a means of reducing its expenditure, introducing prudent assets management, should be cautious when assisting government in time of economic difficulty, and operate as an independent entity.

scholarly journals Credit Risk and Banks’ Profitability in Malaysia

2018 ◽  
Vol 1 (1) ◽  
Author(s):  
Bakri Abdul Karim ◽  
Norlina Kadri ◽  
Kelvin Lee Yong Min
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
Least Square ◽  
Loan Loss ◽  
Ordinary Least Square ◽  
Loan Loss Provision ◽  
Negative Effect ◽  
Empirical Tests ◽  
The Relationship ◽  
Positive Effect

This paper examines the relationship between credit risk and profitability of Malaysian local commercial banks which consist of eight banks they are Maybank, CIMB Bank, Hong Leong Bank, Public Bank, RHB Bank, AmBank, Alliance Bank, and Affin Bank. For the purpose of analysis this study covers a period of eight years from 2005 to 2012. The empirical tests employed in this study are Pooled Ordinary Least Square (OLS) and Panel regression. Based on the findings of this study its shows that the non-performing loan to total loan ratio (NPL/LA) and the ratio of loan loss provision to total loan (LLP/LA) have a negative effect on profitability meanwhile the total loan to total deposit ratio (LA/TD) found to have a positive effect on the return on asset (ROA). Overall the results of this study concluded that to some degree, Malaysia’s commercial banks have a very good credit risk policy.

Fiscal Deficits, Bank Credit Risk, and Loan-Loss Provisions

2020 ◽  
pp. 1-53 ◽  
Author(s):  
Felipe Bastos Gurgel Silva
Keyword(s):  
Credit Risk ◽  
Financial Distress ◽  
Financial Stability ◽  
Banking Sector ◽  
Important Variable ◽  
Loan Loss ◽  
Additional Source ◽  
Fiscal Deficits ◽  
Loan Loss Provisions ◽  
Stabilization Policies

Abstract Fiscal deficits represent an important variable for banks’ aggregate credit risk, revealing governments’ ability to curb banks’ losses in bad states, either with direct cash infusions or with macroeconomic stabilization policies. Deteriorating deficits are associated with increasing financial distress of the banking sector and higher levels of loan-loss provisions. The effect is more pronounced for banks with a strong aversion to underprovisioning and is robust to a battery of tests and to the identification of fiscal shocks using military-spending data. This association represents an additional source of negative comovement between provisions and economic conditions, with implications for financial stability.

scholarly journals Bank’s Regulatory Capital Buffer and Counter-cyclical Behavior - Empirical Analysis Based on China’s 18 Com- mercial Banks

2015 ◽  
Vol 2 (4) ◽  
pp. 7-16
Author(s):  
Jiaqian Liu
Keyword(s):  
Commercial Banks ◽  
Negative Relationship ◽  
Bank Capital ◽  
Regulatory Capital ◽  
Loan Loss ◽  
Loan Loss Provisions ◽  
Chinese Business ◽  
Significant Negative Relationship ◽  
Chinese Banks ◽  
The Relationship

This paper estimates the relationship between the Chinese business cycle and the regulatory capital buffers of China’s commercial banks, conducts empirical tests by using an unbalanced panel of 18 listed Chinese banks for the period 2005–2014. The results show that in China there is a robustly significant negative relationship between the economic cycle and bank capital buffers. Insignificance of coefficient of the total amount of loans shows that China’s commercial banks holding more capital buffer do not necessarily lead to a “credit crunch” phenomenon. Positive significant asset coefficient indicates the larger the size of the assets, the more inclined for China banks to hold more capital buffers, which is incompatible with “too big to fall” theory. The relationship between the loan loss provisions and capital buffers is not significant and this caused by Chinese commercial bank’s balance between the profit and cost perspective.

scholarly journals Consequence of loan loss provisions on earnings management behaviour: A study on the best African commercial banks

2017 ◽  
Vol 48 (3) ◽  
pp. 1-11 ◽  
Author(s):  
T. S. Desta
Keyword(s):  
Earnings Management ◽  
Commercial Banks ◽  
Financial Statements ◽  
Income Smoothing ◽  
Loan Loss ◽  
Global Finance ◽  
Accounting Data ◽  
Pairwise Correlation ◽  
Loan Loss Provisions ◽  
The Relationship

This study aimed at analysing the relationship between loan loss provision (LLP) and earnings management in the African commercial banks. The study selected the 11 banks among the 32 best commercial banks as identified by the Global Finance Magazine in 2014. These 11 banks are available online in the Bureau van Dijk Bankscope data and helped observe 10 years (2004-2013, of which 2003 is the base) financial statements, which accounts 34.38% of the 32 best banks. Accounting data derived from 11 years audited financial statements were used; 110 bank-year observations. A two stage panel regression, partial and pairwise correlation, and independent t-test were applied in order to analyse the relationship between the discretionary LLP (DLLP) and earnings management. Accordingly, the study found that loan to deposit (LD), return on asset (ROA), and earnings before tax and provision (EBTP) significantly influence the DLLP. Besides, banks with high premanaged earnings and well-capital more indulge in the DLLP. The study supports empirical findings on income smoothing and external financing hypotheses, but not the capital management hypothesis. Finally, further research on this topic is recommended, among others, by taking relatively large bank-year observations.

scholarly journals Impact of Credit Risk Management Systems on the Financial Performance of Commercial Banks in Uganda

2018 ◽  
Vol 66 (6) ◽  
pp. 1627-1635
Author(s):  
Isah Serwadda
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Financial Performance ◽  
Commercial Banks ◽  
Risk Measures ◽  
Secondary Data ◽  
Credit Risk Management ◽  
Loan Loss ◽  
Loan Loss Provisions ◽  
The Impact

The paper is set to analyse the impact of credit risk management on the financial performance of commercial banks in Uganda for a period of 2006–2015 using panel data for a sample of 20 commercial banks. The study employs return on assets as a dependent variable and non‑performing loans, growth in interest earnings and loan loss provisions to total loans as credit risk measures. Secondary data is sourced from the Bank scope database, African development bank and the central bank of Uganda. The study employs descriptive statistics, regressions and correlation analysis. Regression models are to estimate the magnitude of significance of credit risk management on the performance of commercial banks in Uganda. The study revealed that credit risk management impacts on the performance of Ugandan commercial banks. The results portrayed that banks’ performance was inversely influenced by non‑performing loans which may expose them to large magnitudes of illiquidity and financial crisis. Thus given such results, the researcher recommends that banks need to enhance their credit risk management techniques not only to earn more profits but also to maintain a qualitative asset portfolio and attention be given to non‑performing loans, loan loss provision to total loans and growth in interest earnings that were found to be significant. Banks need to design appropriate credit policies that must handle all necessary conditions before advancing credit to their customers and also develop strong credit administration committees and teams that must conduct appropriate and sound loan appraisal evaluations and which must also monitor the loans throughout the required processes right from extending a loan to a customer up to the completion of loan repayments so as to mitigate credit risks.

Determinants of loan loss provisions of commercial banks in Malaysia

2018 ◽  
Vol 16 (1) ◽  
pp. 24-48 ◽  
Author(s):  
Mohd Yaziz Mohd Isa ◽  
Yap Voon Choong ◽  
David Yong Gun Fie ◽  
Md. Zabid Hj Abdul Rashid
Keyword(s):  
Commercial Banks ◽  
Banking Sector ◽  
Panel Data Analysis ◽  
Faithful Representation ◽  
Loan Loss ◽  
Content Type ◽  
Independent Variables ◽  
Loan Loss Provisions ◽  
Interest Income ◽  
Net Profit

Purpose This paper aims to derive determinants of loan loss provisions (LLPs) of commercial banks in Malaysia. Design/methodology/approach A single-stage panel data analysis multiple regression model that contains a mixture of quantitative and qualitative elements is used. The LLPs is a dependent variable or regressor, and non-performing loan (NPL), interest income, net profit, loans and advances and gross domestic product (GDP) are the independent variables or regressor/explanatory variables. The moderating variable is “credit risk management” (CRM) and the intervening variable is “relevance and faithful representation”. Findings This paper suggests in LLPs, NPLs, interest income, loans and advances, net profit and GDP, as well as the moderating effect of CRM and the intervening effect of relevance and faithful representation, are determinants of the LLPs. The moderating variable CRM strengthens the relationship between the independent variables and the dependent variable. The intervening variable “relevance and faithful representation” brings about a more accurate reporting on the levels of the LLPs. Practical implications The association of the factors is investigated further to detect possible effect of multicollinearity and research to better understand how banks manage their risk as the current investigation is limited to banks in Malaysia. Social implications Loan loss provisioning issues of commercial banks in Malaysia are challenges for both regulators and the banking industry owing to the implementation of several new measures, the convergence with internationally accepted accounting standards and differences in loan grading and applications of different loan loss provisioning standards. Because of these challenges, Bank Negara Malaysia (the Central Bank of Malaysia) has tightened its supervision of commercial banks to ensure that banks are sufficiently and adequately provisioned. The banking sector plays a significant role, and it is important that it is resilient in the face of potential sources of systemic risk. And, like in other major ASEAN economies, the Malaysian’s financial system remains largely bank-dominated. Originality/value This study discovers whether Malaysian banks are sufficiently provisioned for the regional financial integration under the ASEAN Capital Markets Forum (ACMF) by the end of 2015, where several initiates have been initiated, including the harmonization of standards to encourage greater intra-regional investment flows and transactions and continued provisions of the much needed funds by the region’s private sectors.

scholarly journals Factors Influence Banks’ Advancing Approach: Study Of Emerging Economies

2019 ◽  
Vol 1 (2) ◽  
pp. 64-71
Author(s):  
Damian Honey ◽  
◽  
Tahseen Mohsan Khan ◽  
Malik Umer Ayub ◽  
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
The Body ◽  
Capital Adequacy ◽  
Financial Risks ◽  
Loan Loss ◽  
Risky Assets ◽  
Loan Loss Provision ◽  
Loan Loss Provisions ◽  
Body Of Knowledge

The study explores the advancing approach of commercial banks of Pakistan and Bahrain influenced by different factors that include loan loss provision, profitability, financial risks, and capital requirement. Hypotheses tested using exploratory analysis and GMM panel regression applied to the data obtained from 26 commercial banks of two countries for the period FY2008 to FY2017. The results reveal a significant connection between advancing approach and loan loss provisions for banks of both countries. Further, the advancing approach establishes a meaningful adverse relationship with profitability and credit risk for banks in Pakistan and with CAR for banks in Bahrain. Overall, the study discovers loan loss provision, profitability, credit risk, and CAR as critical factors having a direct and indirect influence on banks’ advancing approaches, which is an addition to the body of knowledge. Interestingly, it observed that the banks are more inclined towards risky assets such as consumer finance must maintain a higher degree of capital adequacy ratio.

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