The Impact of Credit Risk on Performance: A Case of South African Commercial Banks

Global Business Review, Forthcoming

Posted: 16 Feb 2021

Multiple version iconThere are 2 versions of this paper

Date Written: November 19, 2020

Abstract

The objective of the study was to comparatively assess the impact of credit risk on the performance of big and small banks in South Africa. Data from audited financial reports of 14 commercial banks were obtained and divided into two panel data sets and analysed using the R-Studio software version 3.5.1 to assess the impact of capital adequacy ratio (CAR), non-performing loan to gross loan (NPLGL), loan-to-deposit ratio (LTDR), leverage ratio (LR), board gender diversity (BGD), with bank size (total asset) and AGE as control variables, on performance, (return on asset [ROA] and return on equity [ROE]). The findings of the study revealed that non-performing loan (NPL), CAR, LR, LTDR and age of banks all have significant and greater impact on performance, as measured by ROA, of small banks when compared with big banks. Surprisingly, NPL was revealed to have a lesser impact on the ROE of small banks as compared to the ROE of big banks but showed no impact on the ROA of big banks during the period of 2008–2017.

Keywords: Credit risk, performance, big and small commercial banks, South Africa

JEL Classification: G21, G32, G30

Suggested Citation

Lawrence, Babatunde, The Impact of Credit Risk on Performance: A Case of South African Commercial Banks (November 19, 2020). Global Business Review, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3744102

Babatunde Lawrence (Contact Author)

University of KwaZulu-Natal ( email )

Umbilo Road
Durban 4000, KZN 4000
South Africa

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