Credit Risk Management and Bank Performance: A Critical Literature Review
Journal Title: IOSR Journal of Economics and Finance (IOSR-JEF) - Year 2018, Vol 9, Issue 6
Abstract
This study has been necessitated by the continued challenge of the deteriorating levels of credit risks and nonperforming loans to the global financial system. Many stakeholders including the regulators take great interest in the performance of credit facilities granted to borrowers through commercial banks. A wellfunctioning banking sector with acceptable levels of credit risk translates into better bank performance and ultimately a stronger economy. When commercial banks’ performance is strong, the general economy is exposed to huge economic and infrastructural developments. Employment opportunities are also created, and all these factors make regulators and other policy makers sufficiently interested in the performance of the financial system. The literature review provides a comprehensive analysis of the past studies that touch on the key variables that explains the relationship between credit risk administration and performance of commercial banks. It also attempts to interrogate the effect of NPLs and the macroeconomic factors on that relationship. There are numerous measures of bank performance, but this study recommends the use of the CAMELs financial rating model which many studies have also recognized. The study dissects the numerous theories that have tried to explain the key variables that explain the hypothesized relationship. In-depth empirical literature review of the past studies by other researchers especially touching of the key variables of this study has been done. This helped in the identification of the research gaps and future areas that deserve more study. Of great interest is the introduction of two important variables that have an impact on the relationship. These are the NonPerforming Loans as an intervening variable and macroeconomic factors as the moderating variables. These two important variables have enriched the study and have tested the limits of the hypothesized relationship under review. Most of the studies relied on data collected or secondary data and interpretation was carried out using analytical and logical reasoning to determine patterns, relationships or trends. Most of the findings and observations helped in coming up with the summary, conclusions and recommendations that have been useful in many jurisdictions.
Authors and Affiliations
Joseph Macharia Kihuro, Dr. Cyrus Mwangi Iraya
Keywords
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- EP ID EP430874
- DOI 10.9790/5933-0906040913.
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