TITLE:
Determinants of Credit Risk and Operational Risk in Banking Sector Evidence from Pakistani Banking Sector
AUTHORS:
Ihsan Alam Khan, Sehrish Akhter, Jahangir Faiz, Sidra Khan, Muhammad Amir, Noor Ahmad Shah, Major Sohail Khan
KEYWORDS:
Operational Risk, Credit Risk, Gearing Ratio, Liquid Assets
JOURNAL NAME:
Journal of Financial Risk Management,
Vol.12 No.1,
February
13,
2023
ABSTRACT: Risk management is what kind of strategies should be adopted to reduce
all kinds of risk. Risk the difference between the actual return and the expected return. And credit risks the potential that borrower will
fail to meet the obligation. The banking industry of Pakistan is
faced with several challenges among them are determinants of credit risk and
operational risk. Determinants of credit risk are defined as the factors that
may affect the credit risk and determinants of operational risk are defined as the factors that affect the operation of business. Many banks
in Pakistan have created credit risk management departments that are
responsible for managing the credit risk associated with banking operation. The
objective of this study is to evaluate the determinants of credit risk in
Pakistani banking sector. The collected data consists of secondary data.
Financial data was collected from three banks of Pakistan listed at Karachi
stock exchange (KSE) over the period of 17 years from 2000 to 2016. Panel
Regression Model was applied to find the cause and effect relationship for the
under-consideration issue. The result has shown that credit risk and
operational risk have a significant and positive relationship with NPLs,
Gearing Ratio, and Operating Efficiency. And Credit Risk and operational risk
have positive but insignificant relationship with Liquid Assets (LA). The
recommendation of this study is if we pursue proper bank regulations, then the
regulation should be backed up by sound credit analysis, and provision for
suitable situation of credit loans.