Journal of Management Policies and Practices

A Study of Credit Risk and Commercial Banks’ Performance in Yemen: Panel Evidence
Ebrahim Almekhlafi, Khalil Almekhlafi, Mohamed Kargbo, Xiangpei Hu

Abstract
Slow growth in the banking sector has been the case in the Middle East and North Africa (MENA) region in the 1970s and 1990s. This situation is the case for Yemen, the banking sector is dominated by public sector banks, which are characterized by government intervention in credit allocations, losses and liquidity problems and non-performing loans. We investigate empirically the determinants of credit risk and its implication on bank performance in Yemen from 1998-2013 using panel data. The study shows that non-performing loans negatively affect profitability. In general all the six banks are profitable with minimal average Return on Assets (ROA) of 0.79% with an average of 17.2% volume of non-performing loans. The result also shows that Credit risk management and its effect on Banks performance are similar across banks (cross-section invariant) in Yemen. There is evidence of causal relationship between credit risk and banks performance in Yemen. This study contributes to current literature by providing an econometric understanding of relationship in credit risk and its implication on bank performance for the MENA countries. This understanding is important for academics, policy makers and development organizations in shaping the future banking and financial sector infrastructure and hence economic growth.

Full Text: PDF     DOI: 10.15640/jmpp.v4n1a4