The impact of credit risk management on the financial performance of United Arab Emirates commercial banks
Jamil Salem Al Zaidanin and
Omar Jamil Al Zaidanin
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Jamil Salem Al Zaidanin: Arkan Investment Co.
Omar Jamil Al Zaidanin: Rotman Business School â€“ University of Toronto Master in Financial Risk Management - (Candidate) Toronto, ON, Canada
International Journal of Research in Business and Social Science (2147-4478), 2021, vol. 10, issue 3, 303-319
The main purpose of this study is to measure up to what extent the independent factors defined by capital adequacy ratio, non-performing loans ratio, cost-income ratio, liquidity ratio, and loans-to-deposits ratio impact the financial performance of sixteen commercial banks operating in the United Arab Emirates using panel data for the period of 2013-2019. The secondary data was collected from banks and examined by applying standard descriptive statistics and the random effect model for hypothesis testing. It is concluded from the regression outcomes that non-performing loans ratio and cost-income ratio have a significant negative impact on commercial banks profitability in the United Arab Emirates, while capital adequacy ratio, liquidity ratio, and loans -to-deposits ratio all have a very weak positive relationship on the return on assets but they are not determinants of bankâ€™s profitability due to the insignificant statistical impact on it. It is therefore suggested that to enhance financial performance and minimize the risk of non-performing loans in the future, banks must watch very carefully the loansâ€™ performance and analyze thoroughly the clientsâ€™ credit history and ability to pay back their debts prior to any approval of loan applications. Furthermore, banks should continuously improve their assets utilization, liquidity, and techniques of managing operating costs, improve the impact of capital adequacy, and the use of deposits for lending activities from a weak positive impact to a significant positive impact on their profitability. The researchers recommend that future studies on credit risk management influence on banksâ€™ financial performance should consider more independent variables and longer periods of study such as twenty or thirty years to have more accuracy and generalized results. Key Words:Financial Risk, Bankâ€™s Performance, UAE Banks
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Persistent link: https://EconPapers.repec.org/RePEc:rbs:ijbrss:v:10:y:2021:i:3:p:309-319
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