Abstract
This paper examines the relationship between credit risk and financial
performance of commercial banks of Pakistan. The crucial function of banks is to
manage and deal with their credit risk to minimize the credit losses and to maximize
profit. For this purpose, Return on Assets (ROA), Return on Equity (ROE), Nonperforming Loans (NPL) and capital adequacy ratios have been used. The data has been
collected from 24 banks operating in the Pakistan for the period 2010-2017. This study
evidenced significant relationship of credit risk through (leverage, non-performing loans
and provision for facilities ratios) on the financial performance of banks. The result
showed that credit risk is the main parameter for the ascertainment of financial
performance of banks. The findings of this research proved that risk regarding credit
greatly affects the financial performance of Pakistani commercial banks. Credit risk
helps management find systematic solutions for the financial sector that can enhance the
performance of banks.
Muhammad Sadiq Shahid, Faid Gul, Khawar Naheed. (2019) Credit Risk and Financial Performance of Banks: Evidence from Pakistan, NUML International Journal of Business & Management, Volume 14, Issue 1.
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