A COMPARATIVE STUDY OF CREDIT RISK MANAGEMENT: A CASE STUDY OF DOMESTIC AND FOREIGN BANKS IN PAKISTAN

The paper evaluates firm’s level aspects which have more influence on the Credit risk managing of domestic and foreign banks in Pakistan. Secondary data for the period of 2001 to 2010 is used, taken from various data sources. Augmented Dickey Fuller test is used for checking stationary, while for long run relationship Johansson’s Co integration test is used. Linear regression model is used for coefficients analysis with OLS techniques. The result of R2 shows that the model is best fit for both Domestic and Foreign banks. Bank size have positive and significant relationship with credit risk in domestic banks and positive and insignificant in foreign banks. Liquid assets and credit risk have positive and insignificant relationship in domestic banks and negative and significant in foreign banks. Based on the findings of the study it is recommended that credit risk may be minimize if (i) size of the banks maintain with a specify limit and (ii) increase liquidity of the banks.