Credit Risk Management’s Influence on Loan Performance in Commercial Banks in Pakistan

Abstract

The aim of this study is to examine the current practice of credit risk in commercial banks in Pakistan. There is no notable empirical evidence found which shows the relationship between dimensions of credit risk management and loan performance in commercial banks in Pakistan and discuss the factors of credit risk management that contribute in the loan performance of commercial banks in Pakistan. Data is collected from primary sources using close-ended questions. There are 35 scheduled commercial banks operating in Pakistan with 12,424 branches across Pakistan, merely 24 commercial banks are selected for the research according to its market capitalization and data ability and reliability for the research. Data collected from managers and credit officers of commercial banks in Pakistan. Data collected by meeting them personally as well as coordinate with them via emails. Client profile, Credit Risk Policy, and Credit Risk Control have been taken as the dimensions of credit risk management as independent variables and loan performance (LP) as the dependent variable. The result showed that the client profile and credit risk control have a positive and statistically significant influence on loan performance (LP) in commercial banks in Pakistan. However, credit risk policy has a statistically significant but negative influence on loan performance in commercial banks in Pakistan. It is recommended that commercial banks in Pakistan should effectively practice these factors studied in this research to maximize the profitability by increases the loan performance of the bank.