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Credit Risk Management and Loan Performance: Empirical Investigation of Micro Finance Banks of Pakistan

Author

Listed:
  • Sufi Faizan Ahmed

    (Department of Business & Economics, Foundation University Rawalpindi Campus, Pakistan.)

  • Qaisar Ali Malik

    (Department of Business & Economics, Foundation University Rawalpindi Campus, Pakistan.)

Abstract

The main aim of the paper is to evaluate the influence of credit risk management practices on loan performance (LP) while taking the credit terms and policy (CTP), client appraisal, collection policy (CP) and credit risk control (CRC) as the dimensions of the credit risk management practices. For statistical evaluation, the primary data in cross sectional form has been taken into consideration. The data is collected from the managerial level credit risk management staff of microfinance banking sector. Multiple regression analysis has been used for empirical relationship evaluation of the credit risk management practices on the performance of loan. The results of the analysis are showing that the credit terms and client appraisal have positive and significant impact on the LP, while the CP and CRC have positive but insignificant impact on LP. The study is helpful for the management to enhance the LP by focusing on the dimension of the credit risk management practices used in the study. Future aspects of the research have also been taken into account and elaborated.

Suggested Citation

  • Sufi Faizan Ahmed & Qaisar Ali Malik, 2015. "Credit Risk Management and Loan Performance: Empirical Investigation of Micro Finance Banks of Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 5(2), pages 574-579.
    • Handle: RePEc:eco:journ1:2015-02-30
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    References listed on IDEAS

    as
    1. Anju Arora & Muneesh Kumar, 2014. "Credit Risk Management Index Score for Indian Banking Sector: An In-Depth Analysis," The IUP Journal of Bank Management, IUP Publications, vol. 0(1), pages 19-28, February.
    2. Hennie Van Greuning & Sonja Brajovic Bratanovic, 2003. "Analyzing and Managing Banking Risk : A Framework for Assessing Corporate Governance and Financial Risk Management, Second Edition," World Bank Publications - Books, The World Bank Group, number 14949.
    3. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
    4. Cooper, Michael J. & Jackson, William III & Patterson, Gary A., 2003. "Evidence of predictability in the cross-section of bank stock returns," Journal of Banking & Finance, Elsevier, vol. 27(5), pages 817-850, May.
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    Cited by:

    1. Kah Chon, Ooi, 2019. "Impacts Of Firm-Specific Factors And Macroeconomic Factors Against Microsoft’S Performance," MPRA Paper 97254, University Library of Munich, Germany, revised 15 Nov 2019.
    2. Catherine Karimi & Dr. Paul Gesimba & Dr. Peter Koome, 2023. "Effects of Loan Repayment Mechanism on Clients’ Livelihoods Sustainability: A Case of Deposit Taking Microfinance Institutions in Nakuru County, Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(10), pages 1956-1971, October.

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    More about this item

    Keywords

    Loan Performance; Credit Risk Management; Credit Terms; Credit Policy; Credit Risk Control; Loan Appraisal; Micro Finance;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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