The Impact of Credit Risk Management Practices and their Implementation Challenges on the Banks' Performance: the Case of Commercial Banks in Jordan

Aljaloudi, Odai

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The Impact of Credit Risk Management Practices and their Implementation Challenges on the Banks' Performance: the Case of Commercial Banks in Jordan

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Aljaloudi, Odai (2024) The Impact of Credit Risk Management Practices and their Implementation Challenges on the Banks' Performance: the Case of Commercial Banks in Jordan. PhD thesis, University of Gloucestershire. doi:10.46289/UBSE8823

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15685 Odai Aljaloudi (2023) The Impact of Credit RiskManagement Practices.pdf - Accepted Version
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Official URL: https://eprints.glos.ac.uk/id/eprint/15685

Abstract

In an era characterised by economic volatility and financial complexities, the banking sector plays a primary role in sustaining economic stability. However, the global financial landscape has witnessed several crises, highlighting the importance of effective credit risk management practices for banks. Jordan, like many emerging economies, faces its own unique set of challenges in this regard. Despite the recognition of credit risk management's significance, there exists a research gap in comprehensively understanding how the credit risk management practices and their implementation challenges faced by Jordanian commercial banks may influence their overall performance. Addressing this gap is crucial for ensuring the sector's resilience and the country's economic stability. To this end, this research aims to investigate the impact of credit risk management practices and their implementation challenges on the performance of Jordanian commercial banks.  To achieve this, a multi-phase research methodology was adopted, combining qualitative and quantitative data collection, analysis, and processing techniques. Frist, a systematic literature review was conducted to identify the current credit risk management practices and their implementation challenges in commercial banks. Second, a focus group session with 9 credit risk experts in Jordan was carried out to further validate the identified factors. Third, a questionnaire survey was developed and distributed to credit risk experts in Jordan to rank the impact of credit risk management practices, credit risk management challenges, credit risk management best practices, and the bank's performance indicators (CAMELS). Fourth, Partial Least Square Structural Equation Modelling (PLS-SEM) was developed to quantitatively analyse the direct and indirect effects of credit risk management practices and their implementation challenges on bank performance. Fifth, a focus group session with credit risk experts in Jordan was conducted to validate the analysis outputs. Based on the adopted methodology, 34 credit risk management practice factors were considered relevant to the Jordanian commercial banking context. These were categorised into four groups: credit risk understanding, credit risk identification, credit risk analysis and assessment, and credit risk monitoring and controlling practices. Moreover, the research identified 20 key challenges to the implementation of credit risk management practices in Jordan. These challenges fall into four primary categories: regulatory challenges, operational challenges, technological challenges, and economic challenges. Furthermore, the results of the PLS-SEM analysis showed that credit risk monitoring and controlling practices exerted the most substantial direct effect on Jordanian commercial banks' performance, followed by credit risk assessment and analysis, credit risk understanding, and credit risk identification practices, respectively. In terms of the challenges, economic challenges emerged as the strongest direct effect on Jordanian commercial banks' performance, followed by technological, operational, and regulatory challenges, respectively. Additionally, when considering the total effects following the inclusion of the mediator, significant outcomes were discerned for credit risk monitoring and controlling practices, which led to a robust total effect, followed by credit risk assessment and analysis, credit risk understanding, and credit risk identification practices. The inclusion of the mediator yielded significant total effects, with economic challenges registering the most pronounced total effect, followed by technological, operational, and regulatory challenges, respectively.        The outcomes of this study offer a valuable opportunity for academics and decision-makers to gain a deeper comprehension of credit risk management practices and their implementing challenges constraining the performance of banks in Jordan. Also, it imparts valuable information to decision-makers regarding the current state of credit risk management in developing countries like Jordan. Additionally, the study explores the complex interplay between these challenges and current banking practices, requiring an evaluation by credit risk experts. Furthermore, the study has a wider impact on regulatory bodies, notably the central bank of Jordan, as it aids in refining and establishing supervisory programmes for credit risk management.

Item Type:

Thesis (PhD)

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