Impact of credit risk management on financial performance: with special reference to Sri Lankan banking sector

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dc.contributor.authorKrishanthi, A.G.D.
dc.contributor.authorKulathunga, K.M.M.C.B.
dc.date.accessioned2022-02-01T04:57:37Z
dc.date.available2022-02-01T04:57:37Z
dc.date.issued2015
dc.description.abstractCredit risk is always treated as the major risk inherent in a bank’s trading and banking activities since credit creation is the main income generating activity for banks (Kargi, 2011). According to Danson Musyoki (2011) among the other predictors, credit risk is an important predictor of bank financial performance. Good heart (1998) states that the poor Credit risk management (CRM) which results in undue credit risk causes bank failures. Credit risk is the possibility of losing the outstanding loan partially or totally, due to credit events. Sri Lankan banks continued to invest huge sum of financial resources on CRM with the intention to maximizing returns and minimizing bank`s risks. The significance of the study is to have a big picture of how commercial banks manage their credit risk effectively. However contradictory findings and the scarcity of studies in relation to this field in the context of Sri Lanka has created an area for study with regard to seek the relationship between Credit Risk Management and Financial Performance (FP) of banks. Parameters covered in the study were; default rate (DR), bad debts costs (BDC), cost per loan asset (CLA) and Return on Asset (ROA). Accordingly, first objective was assigned to examine the relationship between CRM and FP. Second objective was to identify the most affecting Credit Risk Management factor on Financial Performance of banks. Methodology Descriptive research design was used for this study. Banking sector consider as the research population. Here, population consist Licensed Commercialized Banks and Licensed Specialized Banks. Due to unavailability of data and inconsistency between time periods only 21 banks registered under Sri Lanka banking act considered as sample. Therefore, secondary data of 21 banks were taken from balance sheet, income statement and notes of banks` for five years of time period. Further interview method was used to collect data from senior managers in various banks. To achieve the objectives of the research, secondary data was analyzed by using correlation coefficients analysis, regression analysis and descriptive statistical techniques. Moreover, the independent variable such as Credit Risk Management was measured using Default Rate ratio, Cost per Loan Asset Ratio and Bad Debt Cost ratio. Dependent variable such as Financial Performance was measured using Return on Asset ratio. Results and Discussion According to the Descriptive analysis, the mean value with respect to Default Rate, Bad Debt Cost and Cost per Loan Asset were 0.1043, 0.1014 and 0.2140 respectively. Considering the Bank Financial Performance, the mean value with respect Return on Assets was 0.2365.en_US
dc.identifier.isbn9789550481088
dc.identifier.urihttp://www.erepo.lib.uwu.ac.lk/bitstream/handle/123456789/8280/26-ENM-Impact%20of%20credit%20risk%20management%20on%20financial%20performance-%20with%20.pdf?sequence=1&isAllowed=y
dc.language.isoenen_US
dc.publisherUva Wellassa University of Sri Lankaen_US
dc.subjectFinancial Managementen_US
dc.subjectManagementen_US
dc.subjectEntrepreneurship and managementen_US
dc.subjectBankingen_US
dc.subjectFinancialen_US
dc.titleImpact of credit risk management on financial performance: with special reference to Sri Lankan banking sectoren_US
dc.title.alternativeResearch Symposium 2015en_US
dc.typeOtheren_US
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