Philippine E-Journals

Credit Risk Management Practices And Its Impact On Rural Bank’s Financial Performance

Christine Cayanan

Discipline: management studies

 

Abstract:

Credit risk management in banks has become a critical concept that determines banks' survival, growth, and profitability, not only as a result of the industry's current financial crisis. The goal of this research is to find out how credit risk management affects rural bank profitability in Central Luzon. The bank’s financial performance was measured by the Return on Asset (ROA) and Return on Equity (ROE). The study revealed that Credit Risk Management Practices have no significant impact on the rural bank’s financial performance. Credit Risk Management Practices have insignificant impact on CAR, ROE and ROA. Previous research findings show that the relationship between CAR, ROA, and ROE is not significant. The following recommendations are hereby offered out of the result of the aforesaid findings and conclusions: Banks should consider the indicators of non-performing loans/Gross loans portfolio. It is also recommended that NonPerforming Loans (NPLs) will be used as one of the credit risk indicators. The study sought to find the impact of credit risk management practices on the financial performance of rural banks in Central Luzon and recommend that similar research should be done but with a specific focus on Non-Performing Loan/Total Loan Portfolio as one of the variables of Credit Risk Management. Further, this study will help Rural banks improved its operation by minimizing the credit risk aspect. This will minimize the number of banks placed under the Prompt Corrective Action (PCA) through proper credit risk management that will reduce the Past Due ratio or its Non-Performing Loan.