Credit Risk Management Practices and Pakistani Banks Financial Performance: The Comparison of Conventional and Islamic Banks

Abstract

Devolvement of any economy greatly depends on the banks' loan. Different sectors of the economy e.g. Industry, agriculture and business get a loan from banks. Different sectors face the risk of credit. Yet, the sector faces more risk in the financial sector. The major purpose of this research study is to understand how the financial performance of commercial and Islamic banks in Pakistan are affected by credit risk management practices. The population of this study was 34 Islamic and conventional banks. This study used primary and secondary data to achieve its objectives. The outcomes demonstrate that the financial performance of banks is positively and significantly affected by monitoring and identification of the credit risks. Results of the study further explained that the financial performance of the banks is significantly but negatively affected by Credit risk appraisal. The credit risk control has an insignificant however positive effect on the financial performance of the bank.  This study enables managers and administrators in Pakistan to make supportable prudential principles and approaches to strengthen credit risk management.