Credit risk management and profitability: Evidence from Palestinian banks

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Credit risk has gained considerable attention in most countries of the world intending to manage the efficiency of credit portfolios. This study attempts to examine the impact of credit risk management on bank profitability. The local Bank of Palestine provided secondary data over a ten-year period (2010–2020) collected from financial annual reports. The statistical analysis is carried out using the SPSS and E-views software, and the study hypotheses are verified using descriptive statistics, multicollinearity tests, and regression. Palestinian banks’ profitability was evaluated using return on assets, along with bank-specific metrics such as capital adequacy ratio (CAR), loan-to-deposit ratio (LDR), non-performing loans (NPLs), loan loss provision ratio (LLPR), bank size, and bank age, as signs of credit risk management. The study’s findings indicate that there are differences in how credit risk management affects bank profitability in the context of Palestine. CAR NPLs have a positive but insignificant effect on profitability using ROA. The regression found a significant positive effect of LLPR on profitability using ROA. Finally, with respect to LDR as an indicator of credit risk management, the regression found its negative but insignificant effect on profitability using ROA. The results demonstrate how the board’s structure influences the performance of a company, which is regarded important knowledge for decision makers.

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    • Table 1. Study variables
    • Table 2. Descriptive statistics of study variables
    • Table 3. Correlation matrix
    • Table 4. Hausman test results
    • Table 5. Fixed effect models’ results
    • Conceptualization
      Besan Abdallah Saleh
    • Data curation
      Besan Abdallah Saleh
    • Formal Analysis
      Besan Abdallah Saleh
    • Investigation
      Besan Abdallah Saleh
    • Methodology
      Besan Abdallah Saleh
    • Resources
      Besan Abdallah Saleh
    • Software
      Besan Abdallah Saleh
    • Validation
      Besan Abdallah Saleh
    • Visualization
      Besan Abdallah Saleh
    • Writing – original draft
      Besan Abdallah Saleh
    • Funding acquisition
      Veronica Paz
    • Project administration
      Veronica Paz
    • Supervision
      Veronica Paz
    • Writing – review & editing
      Veronica Paz