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Credit Risk and Profitability of Commercial Banks in Pakistan

Author

Listed:
  • 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.)

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.

Suggested Citation

  • Sohail Farooq & Raza Muhammad Khan & Muhammad Akram Gilal, 2020. "Credit Risk and Profitability of Commercial Banks in Pakistan," Global Economics Review, Humanity Only, vol. 5(1), pages 75-89, March.
    • Handle: RePEc:aaw:journl:v:5:y:2020:i:1:p:75-89
    DOI: 10.31703/ger.2020(V-I).07
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic Growth; Corruption;

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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