Name: Khizar Farooqui

ID: 10915
Subject: Quantitative research methods
Assignment # 1
Topic: The Impact of Credit Risk Management on Profitability of Bank
Profitability Indicators:
ROA: Return on Assets

ROE: Return on Equity

CAR: Capital Adequacy Ratio

NPLR: Non-performing loan ratio

Liquidity risk: This is the proportion of equity capital to total assets or loan capital to total assets

Credit risk management: This refers to the proportion of total debt to total assets or total bank

Operational risk management: This refers to the proportion of total overheads to total assets

Return on Asset:

ROA, which is the ratio of net income to total assets, measure how profitable and efficient a bank'
management is, based on the total assets (Guru et.al, 1999, p.7). ROA is commonly used as indicators of
the profitability and financial performance.

This research found a positive relationship between credit risk and ROA.

Return on Equity:
Return on equity (ROE) value the overall profitability of the fixed income per dollar of equity (Saunders&
Marcia, 2011, p. 23).

ROE = Net Income / Total Equity Capital

This measures the amount of net income after taxes earned for each dollar of equity capital contributed
by the bank’s shareholders (Saunders& Marcia, 2011, p. 23).

In general, stockholders of bank prefer higher ROE .However, the increasing of ROE demonstrate the
increasing risk.

Capital Adequacy Ratio:

Capital adequacy ratio (CAR) is defined as the ratio of capital to the risk-weighted sum of bank’s assets
(Hyun & Rhee, 2011, p. 325). It measures the amount of a bank’s capital relative to the amount of its risk
weighted credit exposures
Non-Performing Loan Ration
A loan is normally defined as non-performing when customer’s payments are arrears. Late payment is
often characterized a non-performing loans (NPLs) rather than a defaulted loan if the borrower is still
undertaking business.

Hypothesis & Conceptual Framework

Research Article # 01 (Fan li & Yijun Zou, 2014)

 Hypothesis 2:

Conceptual Framework: from Reference Article 01

Independent Variable Dependent Variable

Liquidity risk Management Profitability
Credit risk Management
(ROE+ROA)
Bank Size
Operational Risk Management
 Liquidity Risk
Management

Credit Risk
Management
Profitability
Bank Size
(ROE + ROA)

Operational Risk
Management

Research Article # 02
From Reference Article # 02

Independent Variable Dependent Variable

Liquidity risk Management Profitability
Credit risk Management
Operational Risk Management

References
Van Gestel& Baesens, 2008
Afriyie & Akotey, 2012
Hyun & Rhee, 2011
Boudriga, 2009
E. Chuke Nwude & Chinedu Okeke2