ASSESSING THE IMPACT OF CREDIT RISK MANAGEMENT TOOLS ON FINANCIAL PERFORMANCE IN PALESTINIAN BANKS: A COMPARATIVE STUDY OF ISLAMIC AND COMMERCIAL BANKS رسالة دكتوراة

Abstract

The banking systems serve as mediators that provide financial resources and assets. It is known that banks facilitate moving funds from those who own them to those who need them. Banks face numerous challenges and obstacles that are categorized as risks. They actively strive to mitigate the impacts of these risks. To sustain and expand, banks must enhance their risk management policies and strategies to improve their competitive position and save their assets and liabilities from hazards. This dissertation aims to explore the impact of credit risk management tools, namely strategic policies and procedures (SPP), credit limits (CL), credit indicators (CI), credit granting process (CGP), and credit control, follow-up, and structuring system (CCFSS), on the financial performance (FP) in the banking sector in Palestine. A systematic review of relevant literature leads to developing a theoretical model. This model was empirically tested through a structured survey of 195 bank employees in addition to financial data analysis from the bank's annual reports and the publication of the Palestinian Monetary Authority (PMA) for the period from 2018 to 2022 and divided quarterly. The data were analyzed through the Statistical Package for Social Sciences (SPSS). The results indicate that credit risk management tools especially credit control, follow-up, and structuring systems have the highest significant statistical impact on the financial performance of both the Islamic banks (IBs) and the commercial banks (CBs) in the banking industry in Palestine. These results reveal that strategic policies and procedures, and credit limits v have a negative significant statistical impact on the financial performance of both Islamic banks and commercial banks. While, credit indicators, credit granting processes, and credit control, follow-up, and structuring systems have a positive significant statistical impact on the financial performance of both Islamic banks and commercial banks. Regarding the financial data analysis, the results indicate that the capital adequacy ratio (CAR) has a significant positive impact on the return on assets (ROA) for both Islamic banks and commercial banks. Moreover, CAR has a significant positive impact on the return on equity (ROE) of Islamic banks. On the other hand, non-performing loans (NPL) have a significant positive impact on the return on assets (ROA) and the return on equity (ROE) of Islamic banks, while a negative impact exists between non-performing loans (NPL) and the return on assets (ROA) of commercial banks. However, there is no statistically significant impact of either CAR or NPL on the return on equity (ROE) for commercial banks. The findings of this dissertation provide worthy insights for policymakers and bank executives on how credit risk management can protect the banking industry from hazards and enhance the banks' financial performance. This dissertation contributes to the existing literature by consolidating the understanding of credit risk management tools impact on financial performance. Finally, this study suggests areas for future research, including exploring additional credit risk management tools, investigating other financial ratio's impact on return on assets (ROA) and return on equity (ROE), and implementing the same model for other banking systems in similar emerging nations.