Impact of Credit Risk Management on the profitability of private Commercial Banks in Pakistan During the years of 2017- 2022

Abstract

The purpose of this research is to explore the correlation between CRM and profitability of private commercial banks in Pakistan for the period of 2017-2022. The method used for conducting the study and the analysis, as well as to determine the relationship between CRM practices and financial performance is quantitative research methodology. This secondary data for this study are financial statements, annual reports and regulation documents of several private commercial banks for the purpose of enhancing reliability and validity of the study. From the data gathered in the study it was possible to define several major categories that may help to answer the research question. Private commercial banks in Pakistan should focus on enhancing revenue generation by strictly adhering to various CRM measures such as maintaining low NPLs (non-performing loans) and ensuring proper capital adequacy. They should also utilize efficient credit risk management instruments, implement frameworks like the Basel III Accord, and develop well-formulated CRM strategies to address critical issues arising from economic situations and political volatility, while building up a portfolio of loans and systematically reviewing credit risks to increase the risk/return on assets. This study will contribute towards filling the existing gap in literature concerning the relationship between CRM and bank profitability in the banking sector of Pakistan. Also, this paper will provide practical recommendation to the bank executive, regulators and policymakers on how to apply CRM to enhance the resilience of the banking system.