Credit Risk and Profitability of Commercial Banks in Pakistan

Sohail Farooq, Raza Muhammad Khan and Muhammad Akram Gilal
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Sohail Farooq: Assistant Professor,Department of Economics,Hazara University, Mansehra, KP, Pakistan.
Raza Muhammad Khan: Teaching Assistant,Department of Economics,Hazara University, Mansehra, KP, Pakistan.
Muhammad Akram Gilal: Associate Professor,Department of Economics,University of Sindh, Jamshoro, Sindh, Pakistan.

Global Economics Review, 2020, vol. 5, issue 1, 75-89

Abstract: Credit risk in the credit portfolio of financial institutions has dented their profitability. This study examines the relationship between credit risk and profitability of commercial banks in Pakistan. For this purpose three performance measuresROA, ROE, and NIM are used by the study. To test the relationship and impact over the period 2006-2015 the study involved 28 commercial banks. During the period under investigation, the findings of the study reveal that credit risk, represented by loan loss provisions, has a meaningful effect on the profitability measures. The findings provide exciting insights into the influence of credit risk, besides other variables in the study, on the selected commercial banks profitability inside Pakistan, for bank managers, and foremost for policymakers. The study also has policy relevance in the form of providing policymakers sufficient evidence related to the presence of credit risk in the loan portfolio of the banking sector and the ways to overcome this chronic problem.

Keywords: Economic Growth; Corruption (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:aaw:journl:v:5:y:2020:i:1:p:75-89

DOI: 10.31703/ger.2020(V-I).07

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