Decoding the nexus between credit risk challenges and banks performance: perspectives from commercial banks in Jordan

Abstract

With the increasing complexity of global financial markets, commercial banks in emerging markets face a multitude of challenges in managing credit risk, which directly impacts their performance. While the importance of credit risk management is widely recognised, comprehensive research on the connection between credit risk challenges and banks' performance, particularly in emerging markets, remains scarce. Existing literature on credit risk management often focuses on developed markets, neglecting the unique challenges faced by banks in emerging markets. As such, there is a growing need for empirical studies to explore the specific credit risk challenges encountered by commercial banks in emerging markets and their potential implications for banks' performance. This study aims to address this gap by investigating the relationship between credit risk challenges and banks' performance in emerging markets, focusing on the case of Jordan. The research adopts a literature review and administers a questionnaire to explore and assess key credit risk challenges and their implications for performance. Preliminary analysis highlights critical issues such as cybersecurity threats, fluctuations in interest rates, inadequate resources and expertise, changes in regulatory frameworks, and the lack of system integration within the banks’ internal departments. This research contributes to a deeper understanding of the credit risk management landscape in emerging markets and provides valuable insights for policymakers, regulators, and banking practitioners. Addressing these challenges can enable commercial banks to enhance their credit risk management practices, improve performance, and ultimately contribute to the stability and resilience of the financial system in emerging markets.

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

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