International Journal of Management Research and Emerging Sciences

Vol 13, No 3, September 2023, PP. 104-132

Comparison of Credit Risk Management Practices among Islamic and Public

Commercial Bank’s in Pakistan
Muhammad Saeed Iqbal
Department of Islamic Banking and Finance, Universiti Utara Malaysia (UUM), Malaysia.
Sofi Mohd Fikri
Department of Islamic Banking and Finance, Universiti Utara Malaysia (UUM), Malaysia.
mohdfikri@uum.edu.my

Corresponding: m_saeed_iqbal@cob.uum.edu.my

ARTICLE INFO ABSTRACT

Article History: The main objective of this research is to explain credit risk management practices.
Received: 22 Jul, 2023 Furthermore, this research evaluates credit risk management practices in Pakistani
Revised: 09 Aug, 2023 banks. It compares and evaluates the techniques used by Islamic and public
Accepted: 23 Aug, 2023 commercial banks. Quantitative research methods were used in the present study.
Available Online: 07 Sep, 2023
A total of 400 self-administrated questionnaires have been distributed among
DOI: Pakistani employees of selected banks. SPSS version 24 has been used to analyze
https://doi.org/10.56536/ijmres.v13i3.509 responses using correlation, regression, and t-tests. Study results showed that all
variables are significantly correlated. Moreover, this study found a significant
Keywords: difference (p<0.5) of credit risk management practices include credit risk
Pakistan, understanding, credit risk identification, credit risk assessment, credit risk
Islamic Banks, monitoring and credit risk analysis, among Islamic and public commercial banks
Public Commercial Banks,
of Pakistan. It is concluded that this study results may help the banks to find the
Credit Risk Management,
Practices. solutions that enable quality loan creation and growth as well as to determine the
relationship among the theories, concepts, of credit score and credit policies both
JEL Classification: at country level and regional level. Hence, this study is assumed to be significant
E21, G44 in indicating best practices and concept for practical lending to enhance the
performance of credit management to all mangers and policy makers of the banks
as well as to all financial institutions and banks.
© 2023 The authors, under a Creative Commons Attribution-Non-Commercial 4.0.

INTRODUCTION
Define risk as the uncertainty in predicting costs that may lead to unanticipated losses. Return
volatility, or return volatility, indicates higher risks. Credit risk, on the other hand, refers to the failure
of a debtor to repay principal and interest, resulting in significant losses for financial institutions.
Banks must manage credit risk to ensure assets and revenues are protected, and bankruptcy may occur
if financial obligations are not met (Bhatt et al., 2023; Khawaja et al., 2023). Khan et al. (2023) says
the generalized equation for credit risk is as follows: Credit Risk = Maximum (Actual Loss - Expected
Loss, 0). Actual loss is the loss incurred in the above-mentioned calculation. In contrast, the predicted
loss is a future-based estimate.
Credit risk occurs when the actual loss exceeds the anticipated loss. The estimated loss was divided
into several components, including expected Loss (Exposure to Default and Default Probability):
"Loss due to default" Cheah et al. (2023) identified these factors as the three main sources of credit
risk. Risk at default refers to the amount legally owed to the lending bank at that moment. In contrast,
a default indicates that they are not upholding their obligations. This sum might not represent the

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whole amount of the lending bank's resources, as an overdraft account with variable interest rates may
not be successful if all available resources are not used. The client's maximum debt amount less a
discounted security value, which represents the value of the real security, is the client's present
exposure (Gleibner, 2019; Hakizimana et al., 2022).
Loss-assumed default is the anticipated absence of a non-recoverable defaulting customer. This is a
measurement of how much a client owes the lending bank, which indicates how little exposure there
is to default. Credit ratings are a key source of revenue for banking organizations, which are financial
entities. They do, however, have risks that must be appropriately handled to avoid default and financial
suffering, such as interest and significant payments. For banks, managing credit risk is essential
because it keeps credit risk exposure exposed while increasing danger and adjusting the threat rate of
return (Zhang et al., 2023). Banks invest in credit risk control modeling. For a country to develop
economically, the economy state is essential. The greatest threat to financial organizations is credit
risk. Risk management entails detecting, evaluating, monitoring, formulating solutions, and reducing
risk by utilizing managerial resources (Lamaj, 2023).
Throughout the early three decades, the Globe's financial markets have rapidly changed. This is due
to the expansion of the global economy underlining the significance of markets and financial
institutions. Banks are the primary source of economic conditions, and both government officials and
academics know the importance of financial institutions in the modern economic system (Disli et al.,
2023; Iqbal et al., 2022). In the financial system, professional financial institutions (banks) are
essential for resolving disputes over resources between creditors and debtors. They have access to
depositors' funds and have developed fund structures on the stock market, improving efficiency and
resource allocation. In line with China's economic development during the past two decades, these
institutions have undergone tremendous changes (Ullah et al., 2023).
Recent bankruptcies in the US and Japan have brought credit risk management in financial institutions
to light. Banks are key players in the lending process, and effective credit risk management procedures
are critical. After the worldwide economic disaster, particularly in the wake of subprime mortgages
and BASEL II, risk management has become more crucial. Due to its unstable environment, Pakistan
is focus to a total of hazards, including risks linked to credit, assets, markets, and interest rates
(Ozdemir et al., 2023). Due to their financial condition, private and public sector banks differ from
one another in Pakistan, according to research on risk management practices. Staff recommend credit
risk management techniques. The Islamic financial system in Pakistan influences risk management
techniques.
This is a result of the fact that understanding credit risk and credit risk management, as well as risk
detection, monitoring, and evaluation, serve as key determinants. Risk management practices are
positively impacted by risk awareness, risk identification, monitoring, assessment, and analysis.
According to a comparison of conventional banks and Islamic banks Nguyen et al., (2023), this is the
case. The study examines the impact of knowledge, identification, assessment, monitoring, and
analysis on credit risk management strategies in banks. It aims to determine if improved knowledge,
identification, evaluation, monitoring, and analysis significantly improves bank credit risk
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management. The study compares Islamic banks with public commercial banks to assess their overall
influence (Bashir et al., 2023; Ologbon et al., 2021).
A country's growth depends on its economic situation and failing banks can harm that situation. The
biggest hazard to banking organizations is credit risk, and poor credit risk management can negatively
impact the financial system. This study focuses on Islamic and public commercial banks that have
undergone denationalization. With over 1000 branches each, these Islamic banks are the biggest public
commercial banks in Pakistan. These banks provide more credit services and coverage, which makes
their data more trustworthy and accurate than banks that engage in less credit practices (Patra et al.,
2023; Iqbal et al., 2023). In this study, we used observational research to examine the practices of both
Islamic and conventional banks in Pakistan.
The review's findings indicate that the most fruitful and persuasive element in understanding Islamic
banks' gambling departments' executive practices is gambling differentiating evidence. These
elements are risk evaluation and investigation, credit risk examination, and hazard administration. On
the other hand, the most significant and contributing elements in the gamble-on-board practices of
regular banks are the inclusion of gamblers, credit risk assessment, and hazard management. Islamic
and conventional banks manage risk differently (Rehman et al., 2018; Iqbal et al., 2023). This study
looks at how credit risk management in Pakistan's banking sector changed between 2006 - 2011. The
exploration's goal is to determine how credit risk hinders the operation of a rapidly expanding and
significant sector of the banking industry.
The results are intended to increase overall productivity and serve as a basis for strategic
recommendations for board decisions that are successful (Abbas et al., 2014; Iqbal et al., 2023). For
reputable financial organizations, loans are essential since they generate more than 60% of overall
revenue and net profit. They support a variety of initiatives and aid the economic growth of a country.
They form the basis of the banking sector. To thrive on the market, banks must abide by rules and
processes that enhance credit quality and handle nonperforming loans. The development of quality
loan products and their expansion, as well as the interaction between credit theories and policies at the
national and regional levels, have received limited attention to no focus. Therefore, it is expected that
this study will be crucial in highlighting best practices and concepts for responsible lending to all bank
managers and policymakers as well as to altogether monetary organizations and banks in order to
improve credit management practices.
Additionally, it could serve as a guideline for academics interested in the topic to expand on. Hence,
this study aims to determine the role of credit risk management practices in Pakistani banks. It also
finds comparison of the procedures used by Islamic and public commercial banks. Current study
questions were: In comparison to Islamic and public commercial banks of Pakistan, are there any
positive relationships between credit risk management practices of credit risk understanding, credit
risk identification, credit risk assessment, credit risk analysis, and credit risk monitoring? This study
shows the importance of credit risk understanding, identification, assessment, analysis, and monitoring
are linked to credit risk management practices. Moreover, it also analyze and evaluate the credit risk
management practices used by Pakistan's Islamic and public commercial banks.
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LITERATURE REVIEW
Credit risk management in banking organizations is the focus of several organizations,
researchers, and academics. It is possible to find a wealth of literature on the subject. The process of
carefully selecting acceptable information prior to analysis was extremely successful. In recent years,
several attempts have been made to contextualize fictional performances. Aldoseri et al. (2016)
presented a report on credit risk management in banking institutions and proposed a comprehensive
product pricing model based on the debtor's credit rating. He emphasized that banks make profits
through effective credit risk management practices. Akram et al. (2018) found that credit risk
management impacts banks' investment strategies on less secure credit.
When comparing financial institutions based on credit risk, it is clear that lending and buying practices
in financial reports exhibit a highly risky pattern. Banks that manage credit risk by offering credit and
avoiding buying have safer credit ratings. Ariffin et al. (2014) studied the credit risk score ranking of
US banking institutions and established the structure of the Standard Bank Inner Rating Program and
the Operating Design of Position program. This allows banks to manage credit risk, efficiency analysis
and product costs through their internal ranking system. Shafique et al. (2013) identifies credit as the
main source of credit risk for banks, but other factors such as balance sheets, bank guides and trading
activities also contribute to credit risk. Banks are increasingly exposed to counterparty risk on a variety
of instruments beyond credit. Butt et al. (2022) emphasizes credit risk management through
identification, measurement, monitoring, control, and review. A suitable structure, process and
framework are decisive for credit risk management success.
Credit risk management is a central concept in banks as suggested by (Ben et al., 2014). Researchers
such as Al Rahahleh et al. (2019); Mokni et al. (2015); Eid et al. (2019); Noory et al., (2021); Syadali
et al. (2023) and Oudat et al. (2021) found that these practice helps reduce credit risk. In today's world,
companies need credit risk control methods to improve profitability and competitiveness. Inefficient
threat techniques can create dire situations, and globalization forces need to intensify threat
management to improve organizational resilience.
HI: There is a positive relationship among credit risk management practices and credit risk
understanding, credit risk identification, credit risk assessment and credit risk analysis credit risk
monitoring.
Understanding Credit Risk
Chamberlain et al. (2020) says understanding risk means that economic regulators can consciously
plan for the impact of adverse outcomes and thus be better prepared for uncertainty. Banks must have
a solid understanding of credit risk to negotiate effectively, increase efficiency, and ensure safe
financial services. An efficient framework for managing risk is crucial for competitiveness and control.
Identifying internal and external objectives and creating appropriate strategies can improve credit risk
performance. Credit risk poses a significant threat to financial institutions due to loan defaults,
customer engagement, and ineffective debtor performance (Manaf et al. 2021; Ologbon et al., 2021).

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Credit risk management aims to strengthen resources, reduce non-performing assets, and ensure
efficient control. It involves understanding, identifying, and analyzing credit risk to reduce losses.
Financial institutions and professional banking organizations must know various credit risk threats to
maintain financial services (Khan et al., 2023). Recent decades have seen an increase in the knowledge
of financial organizations. Conventional and Islamic financial institutions succeed in effective credit
risk management. A majority of participants believe knowledge and control of risk are crucial to the
success of financial institutions. Research has not clearly distinguished between commercial and
Islamic banks' approaches to risk understanding (Priyadi et al., 2021).
According to Poudel (2018), a study was conducted in better understand how banks and other financial
institutions manage credit risk. Credit risk management differed between developed and less
developed countries, allowing to the findings. The recommendations include reviewing past credit
risk, complying with legal obligations, and sharing credit risk information. To manage credit risk
effectively, Rezina, (2020) found that understanding credit risk is critical.
H2: There is a positive and significant comparison in the understanding of the credit risk of Islamic
and public commercial banks in Pakistan.
Credit Risk Identification
Credit risk identification is vital in today's environment as it reduces credit risk and improves credit
management methods. Control is not required if credit risk is not recognized. A company uses a variety
of techniques to identify different types of hazards, both current and future (Kattel, 2015). The first
phase of credit risk management, credit risk identification, lays the foundation for all subsequent
processes. Lack of control over credit management practices results from improper credit risk
identification (Karim, 2019).
Organizations must take credit risk into account to implement the necessary measures and mitigate its
consequences. Credit risk identification is critical to efficient risk management techniques. Business
operations, resource management and support services require a thorough analysis of current and
potential threats. This helps banks assess activities and identify risky assets to develop and launch
innovative credit risk management applications (Mogga et al., 2018). Credit risk identification is crucial
for banks to manage risk threats and minimize negative impacts on credit risk management. Managers should
identify potential threats to corporate assets, adverse impacts on business goals, and positive probabilities. This
phase helps banks accept or reject clients while reducing risks. By identifying credit risk, banks can make
informed decisions, leading to a more efficient approach to credit risk management (Olobo et al., 2021;
Ologbon et al., 2021).
H3: There is a positive and significant comparison in credit risk identification among Islamic and
public commercial banks in Pakistan.

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Credit Risk Assessment

A risk assessment involves knowing what may cause harm or benefit, based on what is at risk. The
definition can be summed up in that way. Credit risk is assessed according to the severity of the effect,
the probability of occurrence, and the controllability (Saifurrahman et al., 2022). Following the
evaluation, financial institutions like banks are given instructions on how to comprehend the risk's
chance of happening, its impact on the bank, and potential methods to deal with or control the risk.
Nastiti et al. (2019), credit risk assessment is determined through risk assessment. An analysis of risk
is based on opportunity (probability) and impact. Probability is based on the likelihood that the credit
risk will occur as well as its frequency. It is possible, however, to measure the impact based on the
results (Kablan et al., 2016; Ologbon et al., 2021). The financial institutions system can determine
how significant a credit risk is by knowing how frequently it occurs and what the impact will be if it
does occurrence.
Therefore, risk assessment follows risk analysis. In order to create a framework, an assessment is
carried out according to risk acceptance standards (Himmawan et al., 2021). To submit a position, an
assessment is made based on appropriate risk-acceptance requirements an illustration. a) Low
(tolerable) b) Medium (low, as far as reasonable) c) The value was high (unbearable). Althebeh (2019)
suggests conducting a credit risk analysis for all loan types before approval and annually. Financial
institutions should know KYC and anti-money laundering measures. Credit policies should specify
the loan nature, purpose, structure, and safeguarding procedures. Naderi et al. (2019) suggest
considering problem areas like borrower, industry, supplier/buyer, historical performance, projected
financial performance, account conduct, adhering to lending guidelines, mitigation factors, loan
structure, and security.
H4: There is a positive and significant comparison credit risk assessment of Islamic and public
commercial banks in Pakistan.
Credit Risk Monitoring
Credit risk control measures are developed and monitored to align with goals and achieve business
objectives. A bank's risk management is crucial, as it assesses risks like other businesses. Regular
assessments and updates are necessary to counter unexpected threats and prevent serious consequences
(Sohail et al., 2022). The practice of risk monitoring varies between Islamic and conventional banking
institutions. Risk monitoring approaches only follow the risk monitoring strategy. Its assessment
process and accessibility ensure risk control methods are applied correctly. The statistical study shows
that the p-value of 0.041 indicates that Pakistan's Islamic and traditional banking organizations employ
different risk monitoring strategies. Both conventional Islamic and traditional banks of Pakistan
employ completely different risk management techniques, but the data clearly shows that there are
some differences (Trad et al., 2017; Ologbon et al., 2021).

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Mogga et al. (2018) claims that risk monitoring is crucial to management. Identifying errors early is
crucial to effective risk management. Pakistan's banks and other financial institutions are often skilled
at managing risks and monitoring existing ones. Monitoring credit risk and managing credit risk are
closely intertwined.
H5: There is positive and significance comparison in credit risk monitoring among Islamic and public
commercial in Pakistan.
Credit Risk Analysis
The most significant strategy for reducing loan risk is credit risk analysis. Determining the borrower's
financial soundness, evaluating the default risk, and bringing the likelihood of non-repayment down
to a tolerable level are the objectives. Credit ratings typically depend on the highly subjective judgment
(or judgmental valuation approach) of the financial loan officer (Misman et al., 2020; Ologbon et al.,
2021).
Bank employees assess all information provided to them when a consumer asks for a loan. They
determine if the loan satisfies the bank's risk-return goals. This is simply a typical risk analysis.
According to Sawafta et al. (2021), there are three distinct sub-areas of business risk analysis
connected to the following issues: 1) what credit risk is associated with companies' business activities?
2) What steps have regulators taken or not taken to mitigate such risks? How can a lender structure
and manage their own risk when disbursing money?
The first concern is that a defaulter's capability to pay off could be affected. Another states that the
customer's decision to repay is primarily his own decision. Kamsani et al. (2022) says the last question
prompts the specialist to explain how risk can be managed so that the bank can develop an appropriate
lending arrangement. Credit risk specialists at banks often focus their research on the most significant
aspects of a candidate's creditworthiness, using the five Cs of risk management. Silmi et al. (2021) Is
represented by the five Cs. Some of these are character, capability, capital, security, and circumstances.
Character, capacity, capital, collateral, and conditions make up the first five.
H6: There is a positive and significant comparison in credit risk analysis among Islamic & public
commercial banks in Pakistan.

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Theoretical Framework

Figure 1: Theoretical Framework

RESEARCH METHODOLOGY
Depending on the nature of the research problem, the analysis technique is chosen. This study
measured credit risk management practices at Pakistan's three largest professional financial
institutions, including Islamic banks (Meezan Bank, HBL Islamic and Bank of Islami) and public
commercial banks (National Bank of Pakistan, Bank of Punjab, and National Savings). It represents a
logical process for solving a problem. The full name is "science of research". Research methodology
is essentially the way the research problem is presented. Also known as research work plan (Rajasekar
et al., 2013). Depending on the type of hypothesis created, the right approach to answer the study
questions and objectives will be discussed. Second, this section covers the population and sample
selection methods, the scope of the data collection, the method used to collect the data, and an
explanation of the data analysis. Quantitative research methods are used in this study.
Research Design: Using a research design to answer a research question refers to the complete
strategy (Graneheim et al., 2004). Keeping in mind the comparison study of current research
descriptive comparative research design with the help of quantitative research technique will check
the role of credit risk management practices in Islamic banks of Pakistan and compare it with credit
risk management practices of public commercial banks in Pakistan.
Population: This study evaluates and contrasts credit risk management practices in Islamic in Pakistan
and public commercial banks. The top three public commercial banks (National Bank of Pakistan,
Bank of Punjab, and National Savings) as well as the top three Islamic (Meezan Bank, HBL Islamic
and Bank of Islami) were chosen for this reason. Due to their extensive branch network, some banks
rank among the top big banks of each group, covering most of the geographic region of Pakistan. In
this descriptive study, probability sampling is used, and questionnaires were distributed to Islamic
banks (Meezan Bank, HBL Islamic and Bank of Islamic) and public commercial banks (National Bank
of Pakistan, Bank of Punjab, and National Savings).

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Size of Sample: Comrey et al. (1992) consider a sample with fewer than 50 participants weaker than
one with 100 participants. They also consider 200 participants good, 300 very good, and 500
participants’ excellent, and 1000 participants exceptional. Following Comrey et al. (1992)
recommendation of 200, a sample size of 200 was selected from each bank group. A total of 400
samples (200 samples per bank group) are used.
Survey Methodology: The large three Islamic banks of Pakistan (Meezan Bank, HBL Islamic and
Bank of Islamic) and the big three public commercial banks (National Bank of Pakistan, Bank of
Punjab, Bank of Punjab, and National Savings) were employed to collect data using a survey
technique. In the current study, questionnaires were used to collect information related to objectives
and research questions. Hard copies of the questionnaires were provided to respondents during their
personal visits.
Scale of Measurement: Considine et al. (2005) use questionnaires for learning about respondents'
attitudes, knowledge, and opinions as well as their feelings. Teeroovengadum et al. (2018) says
measurement scales is appropriate to determine the relationship between variables. Therefore, a series
of questions was created to understand the function of credit risk management practices in Islamic
banks (Meezan Bank, HBL Islamic and Bank of Islamic) in Pakistan as well as in public commercial
banks (National Bank of Pakistan, Bank of Punjab, and National Savings). This study used the survey
instrument developed by the researcher. It was consisting of two parts. The first component of the
survey contains demographic and personal information. For this part, information on the gender, age,
education level and socio-economic situation of the respondents was obtained. The second part of the
instrument survey contains the factors crucial to the current investigation. These variables include
credit risk management practices, credit risk understanding, credit risk identification, credit risk
assessment, credit risk monitoring, credit risk monitoring, and credit risk analysis. This component of
the study is based on existing surveys and previous studies.
Reliability: Reliability analysis, according to Sekaran (2003), demonstrates the accuracy and stability
of a given concept or hypothesis. The coefficient employed in this instance to evaluate elements'
consistency and dependability is Cronbach's alpha. Yan et al. (2005) says Cronbach's alpha coefficient
is the most reliable indicator for Likert items. It is acceptable to have Cronbach's alpha of 0.7 (Peterson,
1994; Gliem, (2003). Sekaran, (2003) suggests an acceptable value of 0.7.
Missing Value Analysis: Sekaran (2003) suggested using the imputation technique to replace blank
subjects. According to this method, the mean changes according to the depreciation observed on a
particular mobile phone.
Normality Test: According to Das et al. (2016), skewness and kurtosis can be used as signals to test
for comparison. If the range of skewness and kurtosis is between +1.0 and +3.00, the information is
considered properly allocated.
Multicollinearity Test: Multicollinearity between variables (the independent variables) is determined
by the tolerance and variance inflation factor (VIF). While a value closer to 0 implies that

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multicollinearity may be troublesome, a tolerance number closer to 1 indicates that there is less
multicollinearity between the variables (Das et al., 2016).
Correlation Analysis: A correlation coefficient with a value of +0.05 is expected to have a stronger
impact.
Multiple Regression: Analysis The model summary in a regression analysis is as follows: standard
error, R-value, R-squared value, and corrected R-squared value. R provides both the dependent
variable value and the correlation effect. R can be between -1 and +1. A rule that makes the value of
R larger is that a positive value of R indicates a positive association. The correlation between the
factors will be much stronger. R Square shows the proportion of comparison in the determined variable
and its range is from 0 to 1. A low R-square indicates that the current model is not an adequate fit,
while a high R-square indicates that the model is not an adequate fit. R-squared values can be improved
by Adjusting R-Squared. R-squared values are typically used to compare models and determine which
provides the most accurate fit. The model with the highest R-squared value is selected.
Independent t-test Analysis: The independent t-sample test examines whether two distinct or
irrelevant groups have distinct signs. In other words, we assess whether the approach for two
comparison groups varies significantly. ASSUMPTIONS UNDERLYING THE INDEPENDENT t-
TEST: 1. This information (ratings) is unrelated (they should have comparison ratings). 2. Within each
of the two variables, the test variable (dependent variable) has a normal distribution. This is called the
normality assumption. 3. The variances of the (dependent) test variables are identical between the two
populations (Kim, 2019).

RESULT AND DISCUSSION

The quantitative analysis of the questions created in the first study of the research serves as the
basis for this study. This analysis provides a roadmap for identifying the roles of credit risk
understanding, credit risk identification, credit risk assessment, credit risk monitoring, and credit risk
analysis and credit risk management practices. Credit risk management practices between public
commercial banks and Islamic banks in Pakistan are also included.
Islamic Bank (Meezan Bank, HBL Islamic and Bank of Islamic)
Reliability Analysis
Table 1: the Cronbach’s Alpha value for item no 41 of the used tool, which shows reasonable
reliability. Peterson (1994) says 0.7 is the acceptable value while the study tool item has 0.9. There is
therefore a good correlation between Cronbach’s Alpha and the reliability of item 41. To conclude,
Cronbach’s Alpha may provide an indication of a study’s reliability.
Table 1: Statistics of Reliability
Cronbach’s Alpha No. of Items
0.909 41

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Missing Value Analysis

Given Table 2: have two columns labelled Count and Percent, which shows that the data does not
contain any missing values.
Table 2: Univariate Statistics

Variables N Mean Std. Deviation Missing No. of Extreme*

Count Percent Low High
UCR-1 200 2.22 1.25 0 .0 0 0
UCR-2 200 3.43 1.23 0 .0 0 0
UCR-3 200 2.20 1.90 0 .0 0 0
UCR-4 200 3.21 1.24 0 .0 0 0
UCR-5 200 3.03 1.24 0 .0 25 0
UCR-6 200 3.05 1.89 0 .0 11 0
UCR-7 200 3.11 0.22 0 .0 0 0
UCR-8 200 3.24 1.26 0 .0 0 0
ICR-1 200 3.40 0.99 0 .0 0 0
ICR-2 200 2.99 0.80 0 .0 7 0
ICR-3 200 3.14 0.77 0 .0 0 0
ICR-4 200 2.99 0.43 0 .0 0 0
ACR-1 200 3.25 0.80 0 .0 11 0
ACR-2 200 3.24 0.53 0 .0 25 0
ACR-3 200 3.55 0.63 0 .0 20 0
ACR-4 200 3.20 0.77 0 .0 10 0
ACR-5 200 3.25 0.65 0 .0 20 0
ACR-6 200 3.45 0.67 0 .0 0 0
MCR-1 200 3.11 0.71 0 .0 0 0
MCR-2 200 3.24 0.91 0 .0 0 0
MCR-3 200 3.40 1.43 0 .0 0 0
MCR-4 200 2.99 1.53 0 .0 15 0
MCR-5 200 3.04 1.25 0 .0 25 0
AN-CR-1 200 2.99 1.89 0 .0 0 0
AN-CR-2 200 3.25 0.22 0 .0 20 0
AN-CR-3 200 3.24 1.26 0 .0 0 0
AN-CR-4 200 3.11 0.99 0 .0 20 0
AN-CR-5 200 2.22 0.80 0 .0 10 0
AN-CR-6 200 3.43 0.77 0 .0 0 0
AN-CR-7 200 2.20 0.43 0 .0 25 0
MP-CR-1 200 3.21 0.80 0 .0 12 0
MP-CR-2 200 3.03 0.53 0 .0 20 0
MP-CR-3 200 3.25 0.63 0 .0 10 0
MP-CR-4 200 3.24 0.77 0 .0 0 0
MP-CR-5 200 3.11 0.65 0 .0 0 0
MP-CR-6 200 2.22 0.67 0 .0 0 0
MP-CR-7 200 3.25 0.71 0 .0 0 0
MP-CR-8 200 3.24 0.91 0 .0 0 0
a) The No. of circumstances external series (Q1 – 1.5 (QR), Q2 + 1.5 (QR). b) The interquartile range (IQR) is zero, as
shown by the value.

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Normality Test
Data distribution is normally distributed, with skewness and kurtosis values of ± 1.0 and ± 2.00,
respectively, according to Das et al. (2016). Data with skewness and kurtosis values between ± 1.0
and ± 2.00, as shown in Table 3: are normally distributed. Kurtosis.
Table 3: Descriptive Statistics

Variables (N) Skewness Kurtosis

Statistics Statistics Error-Std Statistics Error-Std

UCR-1 200 -.711 .151 -.900 .271

UCR-2 200 -.524 .151 -.952 .271
UCR-3 200 -.450 .151 -1.058 .271
UCR-4 200 -.422 .151 0.362 .271
UCR-5 200 -.430 .151 -.711 .271
UCR-6 200 -.490 .151 -.524 .271
UCR-7 200 -.699 .151 -.450 .271
UCR-8 200 -.825 .151 -.422 .271
ICR-1 200 -.600 .151 -.430 .271
ICR-2 200 -.960 .151 -.900 .271
ICR-3 200 -.800 .151 -.952 .271
ICR-4 200 -.825 .151 -1.058 .271
ACR-1 200 -.599 .151 0.362 .271
ACR-2 200 -.582 .151 1.122 .271
ACR-3 200 -.490 .151 -.268 .271
ACR-4 200 -.468 .151 0.245 .271
ACR-5 200 -.900 .151 1.235 .271
ACR-6 200 -.589 .151 -.468 .271
MCR-1 200 -.524 .151 -.900 .271
MCR-2 200 -.521 .151 -.589 .271
MCR-3 200 -589 .151 -.524 .271
MCR-4 200 -.426 .151 -.521 .271
MCR-5 200 -.524 .151 -.900 .271
AN-CR-2 200 -.142 .151 -.952 .271
AN-CR-2 200 -.426 .151 -1.058 .271
AN-CR-3 200 -.526 .151 0.245 .271
AN-CR-4 200 -.524 .151 1.235 .271
AN-CR-5 200 -.514 .151 -.468 .271
AN-CR-6 200 -.426 .151 -.900 .271
AN-CR-7 200 -.459 .151 0.245 .271
MP-CR-1 200 -.458 .151 -.426 .271
MP-CR-2 200 -.479 .151 -.900 .271
MP-CR-3 200 -.789 .151 -.952 .271
MP-CR-4 200 -.254 .151 -1.058 .271
MP-CR-5 200 -.248 .151 0.362 .271
MP-CR-6 200 -.125 .151 -.521 .271
MP-CR-7 200 -.046 .151 -589 .271
MP-CR-8 200 -.782 .151 -.426 .271
Listwise N Valid 200

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Multicollinearity Test
Tolerance and variance inflation factors (VIF) are close to 1, meaning there is less multicollinearity;
however, when VIF equals 0, there is sufficient multicollinearity, which may be problematic (Yan et
al., (2005). According to Das et al. (2016), when the tolerance value falls below 0.01, multicollinearity
occurs between the variables. Due to this, table 4: shows there are no multicollinear relationships
between the variables.
Table 4: Coefficients

Model Collinearity
Tolerance VIF
1UCR-Final .077 9.241
ICR-Final .113 7.743
ACR-Final .221 4.443
MCR-Final .153 8.880
AN-CR-Final .143 6.663
a) DV: MP-CR-Final

Correlation Analysis
Table 5: shows the correlation values for credit risk understanding, credit risk identification, credit
risk assessment, credit risk monitoring, credit risk analysis, & credit risk management practices were
.251*, .227*, .253*, .333*, .443*, & .449*, respectively. These results demonstrate a strong positive
association, and each of the variables has a significant value in the Table below.05. All factors,
therefore, have a strong positive association.
Table 5: Correlations

UCR-Final ICR-Final ACR-Final MCR-Final AN-CR-Final MP-CR-Final

Correlation Pearson 1 .227* .253* .333* .443* .449*
Tailed 2-Sig. 0.000 0.000 0.000 0.000 0.000
(N) 200 200 200 200 200 200
Correlation Pearson .251* 1 .253* .333* .443* .449*
Tailed 2-Sig. 0.000 0.000 0.000 0.000 0.000
(N) 200 200 200 200 200 200
Correlation Pearson .251* .227* 1 .333* .443* .449*
Tailed 2-Sig. 0.000 0.000 0.000 0.000 0.000
(N) 200 200 200 200 200 200
Correlation Pearson .251* .227* .253* 1 .443* .449*
Tailed 2-Sig. 0.000 0.000 0.000 0.000 0.000
(N) 200 200 200 200 200 200
Correlation Pearson .251* .227* .253* .333* 1 .449*
Tailed 2-Sig. 0.000 0.000 0.000 0.000 0.000
(N) 200 200 200 200 200 200
Correlation Pearson .251* .227* .253* .333* .443* 1
Tailed 2-Sig. 0.000 0.000 0.000 0.000 0.000
(N) 200 200 200 200 200 200
The significance limit for correlation is 0.01 (tailed-2).

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Regression Analysis
Regression analysis is shown in Table 6: which displays the identified values. Credit risk
Understanding, credit risk identifying, credit risk assessing, credit risk monitoring, and credit risk
analyzing total 0.001, 0.001, 0.000, 0.000, and 0.000, which equals 0.05, which is significant.
Table 6: Coefficient

Model Unstandardized Coefficient Standardized Coefficient t Sig.

B Std. Error Beta

(Constant) 1.433 .243 5.77 0.000
UCR-Final -.0663 .253 .009 .048 0.001
ICR-Final -.241 .183 .124 2.47 0.001
ACR-Final .244 .154 .158 2.01 0.000
MCR-Final .077 .199 .167 .633 0.000
AN-CR-Final 0.53 .122 .189 3.33 0.000
a) Dependent Variable: MP-CR-Final

Public Commercial Banks (National Banks of Pakistan, Bank of Punjab, and National Saving)
Reliability Analysis
Table 1: the Cronbach’s Alpha value for item no 41 of the used tool, which shows reasonable
reliability. Peterson (1994) says 0.7 is the acceptable value while the study tool item has 0.9. There is
therefore a good correlation between Cronbach’s Alpha and the reliability of item 41. To conclude,
Cronbach’s Alpha may provide an indication of a study’s reliability.
Table 1: Statistics of Reliability

Cronbach’s Alpha No. of Items

0.909 41

Missing Value Analysis

Given Table 2: has two columns labelled Count and Percent, which shows that the data does not
contain any missing values.

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Table 2: Univariate Statistics

Variables (N) Mean Std. Deviation Missing No. of Extreme*

Count Percent Low High
UCR-1 200 3.11 0.99 0 .0 0 0
UCR-2 200 2.22 0.80 0 .0 25 0
UCR-3 200 3.24 0.77 0 .0 11 0
UCR-4 200 3.24 0.43 0 .0 0 0
UCR-5 200 3.11 0.80 0 .0 0 0
UCR-6 200 2.22 0.99 0 .0 0 0
UCR-7 200 3.43 0.22 0 .0 7 0
UCR-8 200 2.20 1.26 0 .0 0 0
ICR-1 200 3.24 0.99 0 .0 0 0
ICR-2 200 3.25 0.80 0 .0 25 0
ICR-3 200 3.24 0.77 0 .0 11 0
ICR-4 200 3.11 0.43 0 .0 0 0
ACR-1 200 3.11 0.80 0 .0 0 0
ACR-2 200 2.22 0.53 0 .0 0 0
ACR-3 200 3.11 0.80 0 .0 7 0
ACR-4 200 2.22 0.77 0 .0 10 0
ACR-5 200 3.43 0.43 0 .0 20 0
ACR-6 200 2.20 0.80 0 .0 0 0
MCR-1 200 3.24 0.53 0 .0 0 0
MCR-2 200 3.24 0.63 0 .0 0 0
MCR-3 200 3.43 0.77 0 .0 0 0
MCR-4 200 3.24 0.65 0 .0 15 0
MCR-5 200 3.25 0.67 0 .0 25 0
AN-CR-1 200 3.24 0.71 0 .0 0 0
AN-CR-2 200 3.11 0.91 0 .0 20 0
AN-CR-3 200 3.11 0.80 0 .0 0 0
AN-CR-4 200 2.22 0.77 0 .0 0 0
AN-CR-5 200 3.11 0.43 0 .0 0 0
AN-CR-6 200 2.22 0.77 0 .0 0 0
AN-CR-7 200 3.24 0.43 0 .0 15 0
MP-CR-1 200 3.25 0.80 0 .0 25 0
MP-CR-2 200 3.24 0.53 0 .0 15 0
MP-CR-3 200 3.24 0.63 0 .0 20 0
MP-CR-4 200 3.25 0.77 0 .0 0 0
MP-CR-5 200 3.24 0.65 0 .0 0 0
MP-CR-6 200 3.11 0.67 0 .0 0 0
MP-CR-7 200 3.11 0.71 0 .0 0 0
MP-CR-8 200 2.22 0.91 0 .0 0 0
a) The No. of circumstances external series (Q1 – 1.5 (QR), Q2 + 1.5 (QR). b) The interquartile range (IQR) is zero, as
shown by the value.

Normality Test
Data distribution is normally distributed, with skewness and kurtosis values of ± 1.0 and ± 2.00,
respectively, according to Das et al. (2016). Data with skewness and kurtosis values between ± 1.0
and ± 2.00, as shown in Table 3: are normally distributed. Kurtosis.

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Table 3: Descriptive Statistics

Variables (N) Skewness Kurtosis

Statistics Statistics Error-Std Statistics Error-Std
UCR-1 200 -.458 .151 1.122 .271
UCR-2 200 -.479 .151 -.268 .271
UCR-3 200 -.789 .151 0.245 .271
UCR-4 200 -.254 .151 1.235 .271
UCR-5 200 -.248 .151 1.122 .271
UCR-6 200 -.125 .151 -.524 .271
UCR-7 200 -.046 .151 -.450 .271
UCR-8 200 -.782 .151 -.422 .271
ICR-1 200 -.458 .151 1.235 .271
ICR-2 200 -.960 .151 1.122 .271
ICR-3 200 -.800 .151 -.524 .271
ICR-4 200 -.248 .151 1.235 .271
ACR-1 200 -.125 .151 0.362 .271
ACR-2 200 -.046 .151 1.122 .271
ACR-3 200 -.782 .151 -.268 .271
ACR-4 200 -.458 .151 0.245 .271
ACR-5 200 -.960 .151 1.235 .271
ACR-6 200 -.046 .151 -.952 .271
MCR-2 200 -.782 .151 -1.058 .271
MCR-2 200 -.458 .151 0.362 .271
MCR-3 200 -.960 .151 -.521 .271
MCR-4 200 -.800 .151 -589 .271
MCR-5 200 -.046 .151 -.426 .271
AN-CR-1 200 -.782 .151 -.952 .271
AN-CR-2 200 -.458 .151 -1.058 .271
AN-CR-3 200 -.960 .151 0.245 .271
AN-CR-4 200 -.800 .151 0.362 .271
AN-CR-5 200 -.046 .151 1.122 .271
AN-CR-6 200 -.782 .151 -.268 .271
AN-CR-7 200 -.960 .151 0.245 .271
MP-CR-1 200 -.458 .151 0.362 .271
MP-CR-2 200 -.479 .151 1.122 .271
MP-CR-3 200 -.789 .151 -.268 .271
MP-CR-4 200 -.254 .151 0.245 .271
MP-CR-5 200 -.248 .151 0.362 .271
MP-CR-6 200 -.125 .151 -.521 .271
MP-CR-7 200 -.046 .151 -589 .271
MP-CR-8 200 -.782 .151 -.426 .271
Listwise N Valid 200

Multicollinearity Test
Tolerance and variance inflation factors (VIF) are close to 1, meaning there is less multicollinearity;
however, when VIF equals 0, there is sufficient multicollinearity, which may be problematic (Yan et
al., (2005). According to Das et al. (2016), when the tolerance value falls below 0.01, multicollinearity
occurs between the variables. Due to this, table 4: shows there are no multicollinear relationships
between the variables.

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Table 4: Coefficients

Model Collinearity
Tolerance VIF
1UCR-Final .078 10.243
ICR-Final .120 5.242
ACR-Final .214 4.412
MCR-Final .155 7.770
AN-CR-Final .147 6.364
Correlation Analysis
Table 5: shows the correlation values for credit risk understanding, credit risk identification, credit
risk assessment, credit risk monitoring, credit risk analysis, & credit risk management practices were
.663*, .441*, .771*, .253*, .240*, and .243*, respectively. These results demonstrate a strong positive
association, and each of the variables has a significant value in the Table below.05. All factors,
therefore, have a strong positive association.
Table 5: Correlations

UCR-Final ICR-Final ACR-Final MCR-Final AN-CR-Final MP-CR-Final

Correlation Pearson 1 .441* .771* .253* .240* .243*
Tailed 2-Sig. 0.000 0.000 0.000 0.000 0.000
(N) 200 200 200 200 200 200
Correlation Pearson .663* 1 .771* .253* .240* .243*
Tailed 2-Sig. 0.000 0.000 0.000 0.000 0.000
(N) 200 200 200 200 200 200
Correlation Pearson .663* .441* 1 .253* .240* .243*
Tailed 2-Sig. 0.000 0.000 0.000 0.000 0.000
(N) 200 200 200 200 200 200
Correlation Pearson .663* .441* .771* 1 .240* .243*
Tailed 2-Sig. 0.000 0.000 0.000 0.000 0.000
(N) 200 200 200 200 200 200
Correlation Pearson .663* .441* .771* .253* 1 .243*
Tailed 2-Sig. 0.000 0.000 0.000 0.000 0.000
(N) 200 200 200 200 200 200
Correlation Pearson .663* .441* .771* .253* .240* 1
Tailed 2-Sig. 0.000 0.000 0.000 0.000 0.000
(N) 200 200 200 200 200 200
The significance limit for correlation is 0.01 (tailed-2).

Regression Analysis
Regression analysis is shown in Table 6. It shows the identified values. Credit risk understanding,
credit risk identifying, credit risk assessing, credit risk monitoring, and credit risk analyzing yield
significant values of 0.000, 0.001, 0.000, 0.001, and 0.000, or 0.05.

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Table 6: Coefficient

Model Unstandardized Standardized t Sig.

Coefficients Standardize Coefficients

B Std. Error Beta

(Constant) 1.566 .263 5.99 0.000
UCR-Final -.007 .239 .007 .530 0.000
ICR-Final -.288 .188 .012 2.26 0.001
ACR-Final 253 .153 .189 2.43 0.000
MCR-Final .277 .143 .145 .634 0.001
AN-CR-Final 253 .166 .180 3.48 0.000
a) Dependent Variable: MP-CR-Final

t-tests Analysis
The findings of the t-test analysis based on the conclusion that the hypothesis is accepted are displayed
in Table 7. Because public commercial banks and Islamic banks have comparison credit risk
management practices in terms of understanding and identifying credit risk, the t-score and
significance values for all variables are t = -2.224 & p = 0.000, t = -6.26 & p = 0.000, t = -5.43 & p =
0.001, t = -7.51 & 0.001, and t = -7.71 & p = 0.00. Therefore, the hypotheses are accepted.
Table 7: t-tests Analysis

Levene Test for t-test for Equality Mean

Equality Variance

F Sig. T Df
(2-

nt Interval
Std. Error
Differenc

Differenc
Coefficie
Difference

95%
tailed)

for
Mean

e
Sig.

Lower Upper
UCR-Final
Assumed of Equal Variance 54.104 .000 -2.24 598 0.000 -.2833 .0870 -.458 -.118
Not Assumed of Equal Variance -2.24 50.56 0.000 -.2833 .0870 -.458 -.118
ICR-Final
Assumed of Equal Variance 1.790 .192 -6.26 598 0.000 -.4333 .0842 -.622 -.303
Not Assumed of Equal Variance -6.26 59.86 0.000 -.4333 0.842 -.623 -.303
ACR-Final
Assumed of Equal Variance 1.880 .171 -5.43 598 0.001 .3694 .0528 .484 -.255
Not Assumed of Equal Variance -5.43 54.80 0.001 .3694 .0528 .484 -.255
MCR-Final
Assumed of Equal Variance 35.67 .000 -7.51 598 0.001 -.6334 -7531 -516 .616
Not Assumed of Equal Variance -7.51 32.70 0.001 -.6334 -7532 -516 .616
AN-CR-Final
Assumed of Equal Variance 93.61 .000 -3.22 598 0.000 .4669 .0563 -579 .345
Not Assumed of Equal Variance -3.22 43.47 0.000 .4669 .0563 -579 .345
MP-CR-Final
Assumed of Equal Variance .007 .000 -7.71 598 0.000 .4089 .0673 -534 .272
Not Assumed of Equal Variance -7.71 56.61 0.000 .4089 .0673 -534 .272

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Results
In article we have sections: This section will give the answer to the questions which were developed
in the first chapter of this study. Literature found that they are many factors which effecting credit risk
management practices. Important factors also proved by the help of comparisons responses from the
general public of Pakistan. Credit risk understanding, credit risk identifying, credit risk assessing,
credit risk mentoring, and credit risk analyzing are some of these components. In comparison, credit
risk management practices were evaluated by Pakistan's three main public commercial banks (National
Bank of Pakistan Bank of Punjab, and National Savings) and the three largest Islamic banks (Meezan
Bank, HBL Islamic, and Bank of Islami).
Results of Islamic Banks
These criteria and credit risk management practices are related, as shown in Table 5 of the Islamic
Banking Start-up Study. For Credit risk understanding, credit risk identifying, credit risk assessing,
credit risk mentoring, & credit risk analyzing, respectively, the correlation scores are .251*, .227*,
.253*, .333*, .443*, and .449*. This suggests that there is a strong connection between these five
characteristics and credit risk management practices. The values “understand credit risk”, “identify
credit risk”, “evaluate credit risk”, “monitor credit risk” and “analyze credit risk” are given in Table
4.6 of the Islamic banks study as 0.001, 0.001, 0.000, 0.000, and 0.000 are displayed. These findings
suggest that the five elements of Credit risk understanding, credit risk identifying, credit risk assessing,
credit risk mentoring, & credit risk analyzing, and credit risk management practices in Pakistan's
existing Islamic banks have a highly positive link. This shows a direct link between these five traits
and techniques for managing credit risk.
Results of Public Commercial Banks
These variables and credit risk management practices are related, as shown in Table 5 of the Public
Commercial Banks Analysis. Credit risk understanding, credit risk identifying, credit risk assessing,
credit risk mentoring, & credit risk analyzing all had correlation coefficients of .663*, .441*, .771*,
.253*, .240*, and .243*, respectively. This suggests that there is a strong connection between these
five characteristics and credit risk management practices. The values “understand credit risk”,
“identify credit risk”, “assess credit risk”, “monitor credit risk” and “analyze credit risk” are given in
Table 6 of the analysis of public commercial banks as 0.000, 0.001, 0.000, 0.001 and 0.000
respectively. These figures show a strong positive association between five variables in public
commercial banks. These variables include Credit risk understanding, credit risk identifying, credit
risk assessing, credit risk mentoring, & credit risk analyzing, and credit risk management practices.
This indicates a clear connection between these five characteristics and credit risk management
practices.

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Comparison Of Islamic & Public Commercial Banks

The correlation and regression values of the five factors credit risk understanding, credit risk
identifying, credit risk assessing, credit risk mentoring, and credit risk analyzing, and Credit risk
management practices have been described above. It shows how the connection between these five
elements becomes significant in both Islamic and public commercial banks. This implies that changing
these variables will improve credit risk management practices. However, there is a minimal correlation
between these parameters and credit risk management practices of Islamic banks. However, there is a
high correlation between public commercial banks in Pakistan.
Table 7 displays the results of a t-test study, which compares public commercial banks with Islamic
based on the finding that the full hypothesis is accepted. It intends that there is a distinction in credit
risk management practices in the research between public commercial Banks and Islamic Banks in
comprehending in understanding credit risk management, identification of credit risk, assessment of
credit risk, monitoring of credit risk and analysis of credit risk as the t value and significance value for
all variables is t = -2.224 & p = 0.000, t = -6.26 & p = 0.000, t = -5.43 & p = 0.001, t = -7.51 & 0.001,
t = -3.22 & p = 0.000 and t = -7.71 & p = 0.00 separately which demonstrations that all p-values is
less than 0.05 which is significant.

CONCLUSION AND POLICY IMPLICATION

Credit risk management factors in Islamic and public commercial banks are identified in the
study. There are several factors to be considered when managing risks, including Credit risk
understanding, credit risk identifying, credit risk assessing, credit risk mentoring, and credit risk
analyzing. Credit risk management practices in banks will be improved if these factors are more
focused on. Islamic and public commercial banks improve credit risk management practices, but their
intentions are comparison. Compared to Islamic and public commercial banks have a stronger
relationship with credit risk management practices and five factors. They achieve this by focusing on
credit risk management.
So, this study will check the effect of credit risk understanding, credit risk identification, credit risk
assessment, credit risk mortaring, and credit risk analysis on credit risk management. It will see if all
of them significantly improve credit risk management in banks. Therefore, this research will check the
combined effect of credit risk management practices on credit risk management and also compare
Islamic banks and public commercial banks in Pakistan.
This research examines the factors affecting credit risk management in public Islamic and public
commercial banks. It developed a framework and a survey-based instrument to understand risk
management differences between these banks. Factors include age, experience, cultural differences,
management objectives, and earlier experiences. Public commercial and Islamic banks are more liberal
and accept risk, while Islamic banks are at a growth stage and need expansion. The study highlights
the importance of understanding and addressing this comparison in credit risk management practices.

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Based on the results, the researcher would advise banks to form a credit risk management team that
would be in charge of performing the steps that follow that would reduce credit risk. Banks should
work with corporate organizations and people to promote credit risk awareness and boost participation
in portfolio planning and management. Establish a department for credit risk management, put credit
policies into place, grow the number of employees, and develop and retain the power to approve credit
for employing eligible people. To assess banks' credit risk management practices, establish external
credit rating agencies.
Security concerns limit access to confidential information for in-depth studies. It is challenging to
evaluate practices due to a lack of credit risk management regulations. Researchers work to complete
tasks within the allotted time and budget. However, they are unable to choose appropriate banks,
samples, and sources from the library and the Internet.
The current research includes a variety of limitations, as mentioned above, but it also recommends the
following research areas for further research.
Interviews with top-level bank employees can enhance policy understanding. The research could be
conducted in a large country, including generals, books, SBP PR, relevant articles, and bank policy
manuals. Further studies could benefit from better financial resources, as money and time are major
limitations.

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APPENDIX
Credit Risk Management Practices
Dear Reader:
This study is being conducted by Mr. Muhammad Saeed Iqbal, Ph.D. in Islamic Banking &
Finance). Student at Utara University Malaysia (UUM). The main objective of the study is to examine
and compare credit risk management between Islamic banks (Meezan Bank Ltd., HBL Islamic & Bank
of Islami) and public commercial banks (National Bank of Pakistan, Bank of Punjab & National
Saving) in Pakistan. We assure you that any response you make will remain confidential and only used
for study purpose.
Section-1
Islamic Bank Public Commercial Bank
a) Meezan Bank a) National Bank of Pakistan
b) HBL Islamic b) Bank of Punjab
c) Bank of Islami c) National Savings
Personal Details:
1. Gender:
a) Male b) Female
2. Age:
a) 18 25 b) 26-35 c) 36-45 d) Above 45
3. Marital Status:
a) Single b) Married
4. Your educational qualification:
a) Degree holder b) Master and above c) 12th complete b) Diploma holder
5. In which department/ section/unit/ of the bank are you working?
6. The responsibility that you perform out is:
7. Experience years:
a) 1-5 b) 06-10 c) 11-15) e) 21-25 d) 16-20 f) 26-30 g) 31-35 f) Above 35

Section-2

Please review the following sentence and mark it as appropriate:

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Strongly Agree (SA), Agree (A), Neutral (N), Disagree (D), and Strongly Disagree (SD) are possible
responses.

Sr. 1. Understanding credit risk management SA A N D SD

1 Credit risk management must be understood uniformly by the bank. 1 2 3 4 5

2 Each bank employee is aware of their role in credit risk management and has 1 2 3 4 5
a comprehensive understanding of it.

3 Bank credit risk management responsibility is clearly defined and understood. 1 2 3 4 5

4 Managing credit risk is crucial to bank performance and profitability. 1 2 3 4 5

5 Applying the latest methods of credit risk management is essential. 1 2 3 4 5

6 Your bank wants to increase the implementation of cutting-edge credit risk 1 2 3 4 5

management strategies.

7 It is critical that your bank emphasizes the ongoing monitoring and assessment 1 2 3 4 5
of credit risk management methods.

8 Utilizing credit risk management approaches lowers expenses or anticipated 1 2 3 4 5

losses.

Sr. 2. Credit Risk Identification SA A N D SD

1 The bank identifies its credit risks thoroughly and methodically in relation to 1 2 3 4 5
each of its stated goals and objectives.

2 Banks struggle to rank their credit risks. 1 2 3 4 5

3 The bank's tasks and responsibilities are recognized and linked to changes in 1 2 3 4 5
credit risk.

4 The bank knows the advantages and disadvantages of rival banks' credit risk 1 2 3 4 5
management systems.

5 This bank has created and implemented procedures to identify investment 1 2 3 4 5

possibilities consistently.

Sr. 3. Credit risk assessment and analysis SA A N D SD

1 This bank evaluates the probability of credit concerns. 1 2 3 4 5

2 Credit risks for this bank are evaluated using qualitative analytical techniques. 1 2 3 4 5

3 Credit risks for this bank are evaluated using quantitative analytical techniques 1 2 3 4 5
(high, moderate, low, etc.).

4 Your bank examines and assesses its options to fulfil its credit goals. 1 2 3 4 5

5 An evaluation of the expenses and advantages of handling credit risks is part 1 2 3 4 5

of your bank's reaction to the risks examined.

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6 When credit risks are analyzed, your bank prioritizes them and selects those 1 2 3 4 5
that need active management.

7 When there are resource limitations to implementing credit risk treatments, 1 2 3 4 5

your bank will prioritize those treatments as part of its reaction to credit risks.

Sr. 4. Credit risk monitoring and analysis SA A N D SD

1 Routine management reporting includes regularly evaluating credit risk 1 2 3 4 5

management efficiency.

2 The level of control held by the bank is appropriate considering the credit risks 1 2 3 4 5
it faces.

3 Your bank's reporting and communication procedures aid in credit risk 1 2 3 4 5

management.

4 An assessment of the efficacy of current controls and credit risk management 1 2 3 4 5

measures is part of the bank's response to credit risk.

5 Procedures for choosing recognized risks are part of bank credit risk. 1 2 3 4 5

6 A cost-benefit analysis of mitigating credit risks is part of the bank's response 1 2 3 4 5

to credit risk.

Sr. 5. Credit Risk Management Practices SA A N D SD

1 The bank's senior management evaluates the organization's effectiveness in 1 2 3 4 5

controlling credit business risks regularly.

2 Your bank continuously evaluates and feedback on the performance of its 1 2 3 4 5

credit risk management methods.

3 The bank's credit risk management policies and procedures advise personnel 1 2 3 4 5
on managing credit risks.

4 The policy of your bank supports participation in credit risk management 1 2 3 4 5

training programs.

5 There is a strong emphasis in this bank on hiring credit risk managers with 1 2 3 4 5
extensive training.

6 Banks aim to handle credit risk effectively. 1 2 3 4 5

7 Concentrating bank resources in a single economic area is too risky. 1 2 3 4 5

8 Your bank's use of the Basel Capital Accord would increase credit risk 1 2 3 4 5
management effectiveness.

9 Overall, I think this bank has outstanding practices for managing credit risk. 1 2 3 4 5

Sr. 6. Credit Risk Analysis SA A N D SD

1 Before making loans, this bank evaluates creditworthiness. 1 2 3 4 5

2 Your bank looks at the characteristics, ability, capital available as security, 1 2 3 4 5

and circumstances of the borrower before granting a loan.

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3 This bank divides its borrowers into groups according to a risk component 1 2 3 4 5
(risk rating).
4 It is crucial to demand enough collateral from small debtors. 1 2 3 4 5

5 Bank policy requires all loans to be secured by collateral. 1 2 3 4 5

6 It is better to only need collateral for selected loans rather than all of them. 1 2 3 4 5

7 Reduce the amount of credit extended to defaulters. 1 2 3 4 5

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