Author(s): Azam Abdelhakeem Khalid, Wala Abdelmunem Mohamed Hassan, Neimat AbdAlla Ibrahim, Yousif Abdelbagi Abdalla, Ibrahim Elsiddig Ahmed, Adel M. Sarea
Purpose: This study’s objective is to examine credit risk management effect on financial performance of Sudanese banking sector.
Design/Methodology/Approach: Every bank’s financial reports for 10-year period, from 2006 to 2015 had been employed for the study. To estimate the model, panel regression method was used. For performance indicator, ROE (Return on Equity) was used. Meanwhile, for credit risk management indicators, NPL (Non-Performing Loans) and CAR (Capital Adequacy Ratio) were utilized.
Findings: The results showed that the profitability of Sudanese banks is significantly influenced by credit risk management. The evidence shows that 57% of profitability in banks is affected by the change in capital adequacy ratio and non-preforming loans. The study also shows there is a positive relationship between the banks’ financial performance and capital adequacy ratio, but the correlation is not significant. Furthermore, the correlation between the banks’ financial performance and non-performing loans is significant, but negative.
Practical Implications: The percentage of the impact of NPL (non-performing loans) and CAR (capital adequacy ratio) on the banks’ financial performance is 57%; which means profitability of banks is impacted by the changes in NPL and CAR.
Originality/Value: This study helps filling the aperture in the empirical evidence of how credit risk management impacts the bank’s financial performance process in Sudan.