Effectiveness of Credit Risk Management on the Financial Performance of Philippine Universal Banks
Marylet H. Ilagan
Master in Business Administration
Lyceum of the Philippines University-Batangas
Effectiveness of Credit Risk Management on the Financial Performance of
Philippine Universal Banks
Banks are considered to be in the business to safeguard money and other valuable of the clients; provide loans, credit and payment services; and even offer investment and insurance products. This financial institution is also critical in handling and surviving different types of risks. The issue on credit risk has greater concern on ...view middle of the document...
As of record, retail banking itself only generates 27% of profits. The industry is beset by high operational cost and credit risk.
In the most recent article from The Asian Banker (2014), year 2013 is marked as the toughest year for banks’ performance since 2008. Philippines, as represented by BDO Unibank ranked at fifteenth place among the top 500 banks in the Asia Pacific Region. Although marked as one of the strongest and has achieved the highest balance sheet growth, with assets, loans and deposits up by 31%, 25% and 38%, respectively, it is still relatively had a slower pace of growth in 2013. Philippine banks are not even represented in the ranking among the banks with largest profit and lowest gross NPL ratio. This only shows that Philippine banks have increased in non-performing loans which signals weaker credit condition and signals worsening credit quality.
Effectiveness of credit risk management on the profitability growth or financial performance of banks shall be observed. In the recently concluded study by Abdelrahim (2013), it shows that liquidity has significant strong positive impact on bank size which has significant strong negative impact on effectiveness of credit risk management. Analyzing the effectiveness of CRM has been essential in identifying its characteristics, determinants, challenges and developments. While another study made by Kurawa (2014) assessed the effect of credit risk management on the profitability of Nigerian banks using the default rate, cost per loan asset and capital adequacy ratio for the period of ten years to evaluate the relationship between the two variables.
It is deemed important to undertake the research on the effectiveness of Credit Risk Management (CRM) on the financial performance in this critical time when most of the banks from Asia Pacific region recorded to have slower pace of growth over the years. The subject of the analysis is to determine the variation in performance brought about by changing CRM approaches among the banks and how such practices affected the financial health of the sector as a whole. It also attempts to unfold the use of some risk management, evaluation and assessment tools, models, and techniques.
Objectives of the research
The study will determine the Effectiveness of Credit Risk Management on the Financial Performance of Philippine Universal Banks.
More specifically, it will present profile of the various Philippine universal banks, number of years of operation, capital adequacy, asset quality, management soundness, bank’s earning, liquidity, bank size, and different risk management in banking. It will also identify the benefits of credit risk management strategy and characteristics of credit risk management of Philippine universal banks through a quantitative research design survey method. It will also investigate the challenges on the effectiveness of credit risk management on the financial performance of these universal banks. Moreover, it...