FACTORS AFFECTING CREDIT RISK OF BANKING SECTOR IN PAKISTAN

Abstract

PURPOSE: This study aims to examine the relationship between internal control and credit risk in Pakistani commercial banks from 2002 to 2021. Additionally, the study will consider various bank-specific characteristics and macroeconomic factors and how they influence credit risk in these banks: Total credit to total deposit, Total earning to total asset, Net interest margin, Equity to total asset ratio, TIER 1 Capital & Total Assets (TA). By using the dataset of 11 Pakistani commercial banks. METHODOLOGY: This research has been designed with a systematic process to ensure its trustworthiness. To verify the findings ofthe study, secondary data has been analyzed using empirical, quantitative methods. FINDINGS: This study shows that there are Inflation rate & Bank Size variables are directly influencing, and GDP & Unemployment rate variables are inversely influencing the credit risk ofthe banking sector in Pakistan. ORIGINALITY: This Study measures the factors affecting the credit risk ofbanking sector in Pakistan using NIM, TC to TD, Cost Inefficiency, Total Assets, Equity to Total Asset, TIER 1 Capital & Bank Sector Development as variables. This study also uses macro economic variables like Inflation Rate, Unemployment Rate, GDP & Bank Size.