Measuring Credit Risk Management and its Impact on Bank Performance in Iran

Abstract

The concept of credit risk management can be treated as the heart of any commercial banks. It plays the vital role in the performance of a financial institution as it analyzes credit worth ability of borrowers. Each loan without repayment decreases banks' profit and equity, which in turn may result in bank failure if the bank cannot pay off its liabilities. In this paper, according to existing theoretical and empirical literature, the suitable system was defined for measuring credit risk management. Then, the effect of credit risk management on the profitability and survival of banks in Iran was investigated. For this purpose, model was estimated using panel data method and the financial statements of banks for the period 2005-2016. The results of the study showed that there was a significant relationship between risk management and profitability and bank survivability. The poor credit risk management reduces the profitability and survival of banks.