The Association between Credit Risk Management and Banks’ Performance in Bangladesh: A Panel ARDL Approach

Credit Risk Management

Abstract

This paper aims to empirically investigate both the long-run and short-run association between credit risk management and commercial banks’ performance of Bangladesh by employing a panel data collected from 23 Dhaka Stock Exchange (DSE) listed conventional commercial banks over a period of 13 years spanning from 2008-2020. The study incorporates capital adequacy ratio (CAR), non-performing loan ratio (NPLR), and geographical loan concentration ratio (GLCR) as the indicators of credit risk management, while considering return on asset (ROA) as the performance measure. The results indicate that there is a significant positive long run as well as short-run relationship between CAR and ROA. In addition, the study reveals a short-run negative relationship between NPLR and ROA. The study suggests that commercial banks may maintain sufficient capital to absorb any substantial loan loss without collecting any emergency funds.