Wahid Ahmad Wahabzadeh

Abstract

This research investigated Afghan commercial banks’ performance and evaluated their credit risk management practices over the previous decade (2008–2017) since the last modification of the banking law in 2002. The focus of this study was to examine the impact of credit risk on the performance of banks in the country within this time period. For the investigation, banking financial variables such as the proportion of loans to total assets, the proportion of non-performing loans and the banks’ total loans were analyzed and the rate of return on assets and on capital as well as the profitability of the banks were evaluated accordingly. In order to extract relevant and reliable data, the banks’ balance sheets, the central bank’s economic and financial reports and the International Monetary Fund’s (IMF) reports about Afghanistan’s financial system were extensively reviewed. For further analysis, the credit risk practices of the banks were evaluated in order to reveal whether these practices affected the profitability of commercial banks in Afghanistan. The research findings showed that Afghan commercial banks were operating highly conservatively in regard to their lending activities. The proportion of loans to total assets was very low and consequently, commercial banks had a lower level of profitability. It was also concluded that the profitability of Afghan commercial banks cannot be significantly influenced through credit risk originating from lending.

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