Abstract:
Risk management is most important part of the financial institutions. Credit risk
management is major part of the overall risk management for the worldwide financial
institution. This study analyzed the impact of credit risk management on financial
performance of commercial banks in Sri Lanka. And also attempted to establish if
there exists any relationship between credit risk management and financial
performance of commercial banks in Sri Lanka by using CAMEL (capital adequacy
ratio, Asset quality, management efficiency, earning, and Liquidity coverage ratio).
This research was facilitated by the use of secondary data which was published by
commercial banks in Sri Lanka. This study used multiple OLS Regression to analyze
the data. Accordingly, it was found that there is an impact of the credit risk
managements on the financial performance of commercial bank in Sri Lanka. More
specifically, Capital adequacy and Management efficiency have negative significant
relationship with financial performance of state commercial banks in Sri Lanka. Asset
quality has a positive relationship with financial performance of Sri Lankan
commercial banks and Earning and Liquidity have positive significant relationship
with financial performance. Finally, this study concludes CAMEL model can be used
as a proxy for the credit risk management.
