Credit Risk and Banks Performance: Evidence from WAEMU Countries

Abstract

The banking sector is at the forefront of global concerns. Indeed, given the recent events, researchers agree on the importance of strengthening banks against risks. This study highlights the impact of the credit risk on banking performance in the Member States of the West African Economic and Monetary Union (WAEMU). The analysis includes 20 banks over a 9-year period (2007-2015) using individual specific effects models. The results show a negative and significant effect of credit risk on bank performance measured by ROA (return on assets). Therefore, taking extreme measures to reduce credit risk has a considerable impact on the profitability of banks. The economies of the States require investment and financing, but they are caught up in the West African banking paradox. Banks should review their lending policy and inject more flow into the economy while improving their risk prevention measures in harmony with the social and economic realities of these countries.