Examining the impact of credit risk management challenges on bank performance: The mediating role of best practices

Abstract

In the evolving landscape of banking, effective credit risk management (CRM) is crucial for maintaining financial stability and optimising performance. Commercial banks face numerous challenges in managing credit risk, which can significantly impact their overall performance and resilience. Understanding the relationship between CRM challenges and bank performance, along with the mediating role of best practices, is essential for navigating the complexities of modern banking systems, an area often overlooked in previous financial risk management literature. This study, therefore, investigates the impact of CRM challenges on bank performance, with a particular focus on the mediating role of CRM best practices. Employing a mixed-method research approach, the study integrates qualitative insights from credit risk experts with quantitative analysis using Partial Least Squares Structural Equation Modelling (PLS-SEM) to assess the effects of operational, regulatory, and technological challenges on bank performance. Initial findings highlight specific best practices that can mitigate these challenges and enhance banks' capacity to manage credit risk despite resource constraints. This research thus contributes to the existing literature by advancing the understanding of CRM dynamics in emerging markets and offering insights for banking practitioners and policymakers. The study also supports the development of adaptable CRM practices that strengthen stability and resilience within Jordan’s banking sector, with broader implications for similar markets.

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ORCID for Nicholas Dacre: orcid.org/0000-0002-9667-9331

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