The Effect of Credit Risk Management on the Financial Stability of Banks in the United Kingdom (Published)
Banks around the world are critical to nations economy development due to the significant roles of banks in providing credit to support growth of the economy. In carrying out this task, banks are faced with several risks of which credit risk is significant considering that disbursement of credit is the principal generating source of revenue for banks. Consequently, mitigating credit risk is essential to the continued existence of banks to ensure financial stability of a nation. The study evaluated the effect of credit risk management on financial stability of banks in the United Kingdom. The model used for the research proxied credit risk management as total risk assets to total assets ratio (TRAR), total loans to total deposits ratio (TLTDR), non-performing loan ratio (NPLR) and loan cover ratio (LC). Financial stability was measured by liquidity coverage ratio (LCR), leverage ratio (LR), capital adequacy ratio (CAR) and return on assets before tax (ROABT) and the study collected data from top (5) banks in the United Kingdom. The secondary data required were extracted from the audited financial statements of selected UK banks from 2016 to 2021 and the data was analysed using regression technique through SPSS version 28.The research concluded that there exists significant positive effect between credit risk management and financial stability of sampled UK banks for the sampled period since the result of the regression analysis revealed that the probability of F-statistic value of 3.427 with p-value of 0.023 is below significance level of 5%.The study therefore recommends that credit risk management(CRM) proxied by total risk assets to total assets ratio (TRAR), total loans to total deposits ratio (TLTDR), non-performing loans to gross loan ratio (NPLR) as a measure of asset quality and loan cover ratio (LC) have a joint significant effect on financial stability of UK banks.
Keywords: Credit Risk Management, Credit risk, Non-performing Loan., UK banks, financial stability