Determinant of credit risk management in conventional banks of Pakistan: A panel data approach

  • Luqman Khan Demonstrator, Department of Management Sciences University of Buner, Pakistan
  • Samina Rooh Lecturer, Ph.D. Scholar, Department of Management Sciences University of Buner, Pakistan
  • Rameez Kashmiri Lecturer: Department of Management Sciences University of Buner, Pakistan
Keywords: Credit Risk theory, Gross Domestic Product, Non-Performing Loans, Unemployment, Inflation.

Abstract

The purpose of this study is to investigate the elements that affect credit risk management in Pakistan's financial banks. The data was gathered from the annual reports of conventional banks listed in Pakistan's central bank and the country's economic survey across eight years from 2013 to 2020. The stationarity of variables was verified by using Augmented Dicky Fuller (ADF) test. The correlation between the above-mentioned dependent and independent variables was examined utilizing random effect GLS regression based on the Hausman tests. The results indicate that loan loss provision has such a significant and positive impact on bank credit risk. While, management efficiency, GDP, and unemployment all have a negative and statistically insignificant association with bank credit risk. Inflation and leverage also have a significant effect on credit risk, although the relationship was revealed to be insignificant. The loan loss provision (LLP) has a significant influence on credit risk, with such a unit change in LLP resulting in a 0.383-unit increase in credit risk. It is suggested that through better credit risk management the credit risk can be minimized. Batter management exercise will protect bank assets and shareholders’ interests. Furthermore, diversification of loan portfolios will also help to mitigate the credit risk.

Published
2021-11-26
How to Cite
[1]
L. Khan, S. Rooh, and R. Kashmiri, “Determinant of credit risk management in conventional banks of Pakistan: A panel data approach”, jmr, vol. 7, no. 2, pp. 98-114, Nov. 2021.