Impact of credit risk management on commercial banks performance in South Africa

Abstract

This study will attempt to analyse the impact of credit risk management on commercial banks in South Africa. The objective is to identify how credit risk is measured and establish a relationship with the performance of commercial banks in South Africa. Two measures of risk were contemplated being the percentage of non-performing loans and the capital adequacy ratio; and its subsequent impact on the performance of the commercial banks, measured by return on equity (ROE). The study looked at six commercial banks in South Africa and using regression analysis found a statistically significant correlation between non-performing loans and performance and that capital adequacy ratio has a greater impact on performance than non-performing loans. It was recommended that commercial banks in South Africa continue with a robust and rigorous credit lending policy; with continuous measurement of loan performance throughout the life of the loan to ensure non-performing loans are kept as low as possible. Furthermore, unremitting management and monitoring of Tier I and Tier II capital will positively impact the performance of the commercial banks in South Africa