THE EFFECT OF CREDIT RISK MANAGEMENT ON FINANCIAL PERFORMANCE OF THE INDONESIAN COMMERCIAL BANKS

Andika Verdiyani, Ade Banani, Najmudin Najmudin

Abstract


 

Abstract.This research aims at examining the effect of credit risk management on financial performance of the Indonesian commercial banks during the period (2008-2018), four commercial banks have been chosen to express on the whole Indonesian commercial banks. Two mathematical models have been designed to measure this relationship, the research revealed that the credit risk management effects on financial performance of the Indonesian commercial banks as measured by ROA and ROE. The indicators of Non-performing loans/Gross loans, Provision for facilities loss/Net facilities and the leverage ratio that were found significant in determining credit risk management. Also, banks should establish adequate credit risk management policies by imposing strict credit estimation before granting loans to customers, and banks in designing an effective credit risk management system, need to establish a suitable credit risk environment; operating under a sound credit granting process, maintaining an appropriate credit administration that involves monitoring, processing as well as enough controls over credit risk.

 

 

Keywords:Credit risk, Financial performance, Indonesian commercial banks.


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References


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