The Impact of Credit Risk on Profitability of the Commercial Banks
Saeed MS* and Zahid N
Glasgow Caledonian University, Glasgow Business School, Glasgow, UK
- *Corresponding Author:
- Muhammad Sajid Saeed
Glasgow Caledonian University, Glasgow Business School
Glasgow, Cowcaddens Rd, Lanarkshire G4 0BA, Scotland, UK
E-mail: [email protected]
Received date: June 17, 2016; Accepted date: June 27, 2016; Published date: June 30, 2016
Citation: Saeed MS, Zahid N (2016) The Impact of Credit Risk on Profitability of the Commercial Banks. J Bus Fin Aff 5:192. doi:10.4172/2167-0234.1000192
Copyright: © 2016 Saeed MS, et al. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
This paper aimed to analyse the impact of credit risk on profitability of five big UK commercial banks. For measuring profitability, two dependent variables ROA and ROE were considered whereas two variables for credit risks were: net charge off (or impairments), and nonperforming loans. Multiple statistical analyses were conducted on bank data from 2007 to 2015 to cover the period of financial crisis. It was found that credit risk indicators had a positive association with profitability of the banks. This means that even after the deep effects of credit crisis in 2008, the banks in the UK are taking credit risks, and getting benefits from interest rates, fee, and commissions etc. The results also reveal that the bank size, leverage, and growth were also positively interlinked with each other, and the banks achieved profitability after the financial crisis and learned how to tackle the credit risk over the years.