Abstract:
The main objective of this study was to establish the impact of credit risk management
and Financial Performance of finance companies in Sri Lanka. The study had
secondary objectives to identify how non-performing loans affects finance companies
performance in Sri Lanka. The study adopted a quantitative research design which
assisted to examine the impact between credit risk management and financial
performance of finance companies in Sri Lanka. The sample size as well as the
population of the study was 20 finance companies. This study has used four
explanatory variables as credit risk indicators, loan losses or non-performing loan to
total loan (NPL/TL), loan provision to total loan (LP/TL), loan provision to nonperforming
loan (LP/NPL), and loan provision to total asset (LP/TA) to explained
dependent variable of return on asset as performance indicator .Data was gathered
using a secondary source of financial annual report from Colombo stock exchange
and analyzed using SPSS. The overall finding and conclusion of the study was that
all the measures of credit risk management used in this study are highly significant
predictors of financial performance of finance companies in Sri Lanka The credit risk
management variables were found to be significant in explaining profitability of
finance companies in Sri Lanka. The non-performing loan to total loan variable also
found to be significant to explain the financial performance. Based on the findings
another study can be conducted in Sri Lanka but should really explain expand the
variables of credit risk management that affect financial performance of finance
companies in Sri Lanka.
