Is there any Impact of Credit Management Practices on Bank Performance in PNG

Abstract

Credit Management and Bank Lending practices were the paramount influential activities performed by every bank globally. These activities become major determinant factors for banking performance in commercial banks and private financial institutions in Papua New Guinea (PNG). Most banks have achieved unfavorable results due to a lack of effective credit management and lending practices. According to observations from various annual reports of commercial banks, default risk in terms of existing bad debt has resulted from poor credit management and lending practices. The primary objective of this study is to assess the impact of credit management and bank lending practices on the performance of banks. Specifically, the research examined the effects of interest rates, loan amounts, and loan terms on loan repayment by commercial banks in Papua New Guinea (PNG). The target population for this study was all commercial banks in PNG; however, due to the unavailability of publicly accessible annual reports, only four commercial banks were evaluated based on the available information from the financial years 2016 to 2023. Remarkably, the loans and advances section of the report has been evaluated in conjunction with the lending rate for the loan term available on the banks' website. This research adopted a regression model for the data analysis. The study findings showed that loan amount and loan term (lending practices) have a positive significant effect on loan repayment (banking performance). In contrast, interest rates (Credit Management) have a significant adverse effect on banking performance. The overall study highlights the proactive approach to managing credit risk and promoting transparent lending procedures to sustain banking performance. Several recommendations made in this study aim to improve the efficiency of credit management and lending practices, thereby enhancing the performance of banking.