DETERMINANTS OF THE

LOAN PERFORMANCE IN
COMMERCIAL BANKS

K.D.H.L. RANASINGHE
2020MS9640
 BACKGROUND
• The research problem focuses on investigating the effect of credit management on
loan performance using primary data.
• According to the conceptual framework loan performance is the dependent
variable and credit terms, client appraisal, credit risk control, and collection policy
are the independent variables.
• The population consists of bank employees working in credit-related departments.
The study will be conducted by using primary data.

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 VARIABLES
• Credit Terms - credit period and interest rate. Credit period refers to the period of time in
which the credit is granted.
• Client Appraisal - means assessing the creditworthiness of the customer in order to
ensure their repayment ability.
• Credit Risk Controls - forms and means that provide by a bank adopt to minimize their
risk.
• Collection Policy - policies that an organization should put in place to ensure that credit
management is done effectively.
• Loan Performance - Loan performance refers to the non-performing loans as a proportion
of total loans. A non-performing loan is either in default or close to being in default.

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RESEARCH PROBLEM IDENTIFICATION
 Article: “Credit Risk Management and Loan Performance: Empirical Investigation of Micro Finance
Banks of Pakistan”
 Authors : Sufi Faizan Ahmed, Qaisar Ali Malik
 Publication Year : 2015
 Findings : “the credit term and client appraisal has significant positive impact on LP, Credit control and
Credit risk control are showing their positive and insignificant influence on the performance of the loans
.”

 Article : “Effectiveness of Credit Management System on Loan Performance: Empirical Evidence from
Micro Finance Sector in Kenya”
 Authors: Haron O. Moti ,Justo Simiyu ,Nebat Galo Mugenda and Mary Nelima Sindani
 Publication year: 2012
 Findings : “credit terms, client appraisal, credit risk control and collection policy has significant
relationship with loan performance.”
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RESEARCH PROBLEM IDENTIFICATION
 Article: “Influence of Credit Risk Management on Loan Performance: Special Reference from
Commercial Banks of Ampara District in Sri Lanka”
 Authors : Ahamed Lebbe, Abdul Rauf and Abdul Hameed Mulafara
 Publication year: 2016
 Findings: “there is no significant relationship exists between risk appraisal, risk management
techniques (risk transfer, risk diversification and risk retention) and credit risk management with
loan performance in commercial bank in Ampara district”

• Other researches that conducted in credit risk management area, measured the impact of credit
risk indicators on financial performance of bank/ shareholder value creation/ efficiency of banks/
profitability of banks.

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RESEARCH OBJECTIVES
1. To identify the level of loan performance of commercial
banks.
2. To investigate the impact credit term, client appraisal, credit
risk controls and collection policy on loan performance of
commercial banks.

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RESEARCH QUESTIONS
1. What is the relationship between credit terms and loan performance of
commercial banks?
2. What is the relationship between client appraisal and loan performance
of commercial banks?
3. What is the relationship between credit risk controls and loan performance
of commercial banks?
4. What is the relationship between collection policy and loan performance
of commercial banks?

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THANK YOU