Investigating the impact of credit risk loss and bank specific factors on the financial sustainability of commercial banks in Egypt

Abstract

The financial performance sustainability of banks across the world is important to its, managers, investors, shareholders, and governments. This study aims to investigate the impact of credit risk loss and bank-specific factors on commercial banks' financial (FSUS). The study uses measures such as non-performing loans (NPLs) and capital adequacy ratio (CAR) as credit risk measures, and the study uses cost-efficiency ratio (CER), average lending rate (ALR), and liquidity ratio (LR) to measure bank specific factors. Return on equity (ROE) and return on the asset (ROA) are used as (FSUS) measures. Data of the study was collected from 29 commercial banks from Egypt from (2018) to (2022). Results showed that (NPLs), (CER), and (LR) significantly negatively related to (FSUS), while (CAR) and (ALR) positively related to (FSUS). The study showed that the control variables like, size of bank, age of bank, have a significant positive impact on both measures of (FSUS). The effect of state-owned banks (D1) on sustainability is not statistically significant, while that of privately-owned banks (D2) positive and foreign banks (D3) have a negative. Also, A positive and significant relationship between inflation and (FSUS) but the effect of the crisis variable on (FSUS) is negative. Based on the Practical results, the study recommended that   commercial banks in Egypt should adopt tough credit risk management policies, which should also be updated regularly to guide processes actions to granting of loans and monitoring credit risk. Furthermore, It is suggested that the value of depreciable assets committed to the banks as promises be regularly assessed to account for a decrease in their value. The study recommends policymakers in Egypt to create a strong financial environment by implementing monetary policy that stimulates interest rates and maintains liquidity positions to survive in high competition environments.