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The Impact of Credit Risk on the Sensitivity of Investment Portfolios: Evidence from Iraqi Banks
Corresponding Author(s) : M.M. Salam Eidhan Marzouq
American Journal of Economics and Business Management,
Vol. 8 No. 6 (2025): June
Abstract
Credit risk is one of the most prominent concerns of commercial banks, as it reflects the greater obsession to re-operate the funds of others within the commercial bank in safe ways while ensuring the greatest possible profits. From this standpoint, the research idea began by explaining the concept of credit risk and its most prominent types in detail, as well as explaining the importance of investment portfolios and their role in developing bank funds. The research also demonstrated the nature of the correlation and impact between credit risk and the sensitivity of investment portfolios to it. The research was limited to credit risk indicators (total loans to total current assets and the provision for expected credit losses to total loans) as an independent variable, considering that these indicators are the most influential in determining the extent of credit risk in commercial banks. The dependent variable is the sensitivity of investment portfolios, whose indicators were used (the percentage of each investment portfolio to the total investments during the research years). Two banks (Al-Mansour Investment Bank and Mosul Bank for Development and Investment) were chosen as a purposive sample for the research, and a time series spanning four years (2019-2022). The researcher proceeds from the hypothesis that there is a strong and significant correlation and impact between the independent and dependent variables, and attempts to prove this using financial and statistical analysis.
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- [1] M. D. Othman, The Impact of Credit Risk Mitigants on Bank Value, Arab Academy for Banking and Financial Sciences, Amman, Jordan, 2008.
- [2] A. D. Karim, Measuring Bank Credit Risk and its Role in Predicting Banks’ Financial Failure, Al-Muthanna University, College of Administration and Economics, Iraq, 2018.
- [3] A. Abbas, "Determining the administrative and financial reasons for the failure of companies: An analytical study of Jordanian joint-stock companies," Baghdad University Journal of Economic Sciences, vol. 1, no. 1, 2011.
- [4] M. Imran, "The Impact of Banking Risks on the Degree of Banking Safety in Private Commercial Banks in Syria," Tishreen University Journal for Scientific Research and Studies, Economic and Legal Sciences Series, vol. 37, no. 1, Syria, 2015.
- [5] W. M. Al-Watar, "Using Financial Analysis Methods to Predict the Failure of Industrial Joint Stock Companies: A Study of a Sample of Industrial Joint Stock Companies," Al-Rafidain Journal, vol. 4, no. 32, 2018.
- [6] K. A. Aziz, "The Role of Predicting Financial Failure and Operating Cash Flow Indicators in Banking Stability Using the Kida Model: An Applied Study in a Sample of Iraqi Banks," Al-Ghari Journal of Economic and Administrative Sciences, vol. 7, no. 2, 2013.
- [7] A. Shaheen, A Practical Approach to Measuring Bank Credit Risks in Commercial Banks in Palestine, Gaza: Islamic University, 2010.
- [8] S. Obaidat, Determinants of Capital Adequacy in Commercial Banks, Al-Baqaa Applied University, Jordan, 2012.
- [9] S. Bazm, Using Financial Indicators to Predict Financial Distress, M.S. thesis, Univ. of Qasdi Merbah, Algeria, 2013.
- [10] M. Matar and T. Fayez, Investment Portfolio Management, 1st ed., Amman: Wael Publishing and Distribution, 2005.
- [11] N. M. Nouri et al., Basics of Real and Financial Investment, Jordan: Wael Printing and Publishing House, 1999.
- [12] M. S. Al-Hanawi, Analysis and Evaluation of Stocks and Bonds, Alexandria: University House for Printing, Publishing and Distribution, 2002.
- [13] A. Q. Shandi, Financial Markets: Opportunities and Risks, 1st ed., Iraq: Al-Mizan Printing, 2013.
- [14] G. F. Al-Momani, Modern Investment Portfolio Management, Amman: Dar Al-Manahj for Publishing and Distribution, 2009.
- [15] D. K. Al-Shabib, Principles of Financial Management, Amman: Dar Al-Manahj Publishing, 2009.
- [16] D. Getter, US Implementation of the Basel Capital Regulatory Framework, Congressional Research Service, USA, 2014.
- [17] E. Acosta-González and F. Fernández-Rodríguez, "Forecasting Financial Failure of Firms via Genetic Algorithms," Computational Economics, vol. 43, no. 2, pp. 133–157, 2013. [Online]. Available: http://dx.doi.org/10.1007/s10614-013-9392-9
- [18] J. Berk et al., Fundamentals of Corporate Finance, 2nd ed., Prentice Hall, USA, 2012, p. 335.
- [19] S. G. Cecchetti and K. L. Schoenholtz, Money, Banking, and Financial Markets, 4th ed., McGraw-Hill, 2015.
References
[1] M. D. Othman, The Impact of Credit Risk Mitigants on Bank Value, Arab Academy for Banking and Financial Sciences, Amman, Jordan, 2008.
[2] A. D. Karim, Measuring Bank Credit Risk and its Role in Predicting Banks’ Financial Failure, Al-Muthanna University, College of Administration and Economics, Iraq, 2018.
[3] A. Abbas, "Determining the administrative and financial reasons for the failure of companies: An analytical study of Jordanian joint-stock companies," Baghdad University Journal of Economic Sciences, vol. 1, no. 1, 2011.
[4] M. Imran, "The Impact of Banking Risks on the Degree of Banking Safety in Private Commercial Banks in Syria," Tishreen University Journal for Scientific Research and Studies, Economic and Legal Sciences Series, vol. 37, no. 1, Syria, 2015.
[5] W. M. Al-Watar, "Using Financial Analysis Methods to Predict the Failure of Industrial Joint Stock Companies: A Study of a Sample of Industrial Joint Stock Companies," Al-Rafidain Journal, vol. 4, no. 32, 2018.
[6] K. A. Aziz, "The Role of Predicting Financial Failure and Operating Cash Flow Indicators in Banking Stability Using the Kida Model: An Applied Study in a Sample of Iraqi Banks," Al-Ghari Journal of Economic and Administrative Sciences, vol. 7, no. 2, 2013.
[7] A. Shaheen, A Practical Approach to Measuring Bank Credit Risks in Commercial Banks in Palestine, Gaza: Islamic University, 2010.
[8] S. Obaidat, Determinants of Capital Adequacy in Commercial Banks, Al-Baqaa Applied University, Jordan, 2012.
[9] S. Bazm, Using Financial Indicators to Predict Financial Distress, M.S. thesis, Univ. of Qasdi Merbah, Algeria, 2013.
[10] M. Matar and T. Fayez, Investment Portfolio Management, 1st ed., Amman: Wael Publishing and Distribution, 2005.
[11] N. M. Nouri et al., Basics of Real and Financial Investment, Jordan: Wael Printing and Publishing House, 1999.
[12] M. S. Al-Hanawi, Analysis and Evaluation of Stocks and Bonds, Alexandria: University House for Printing, Publishing and Distribution, 2002.
[13] A. Q. Shandi, Financial Markets: Opportunities and Risks, 1st ed., Iraq: Al-Mizan Printing, 2013.
[14] G. F. Al-Momani, Modern Investment Portfolio Management, Amman: Dar Al-Manahj for Publishing and Distribution, 2009.
[15] D. K. Al-Shabib, Principles of Financial Management, Amman: Dar Al-Manahj Publishing, 2009.
[16] D. Getter, US Implementation of the Basel Capital Regulatory Framework, Congressional Research Service, USA, 2014.
[17] E. Acosta-González and F. Fernández-Rodríguez, "Forecasting Financial Failure of Firms via Genetic Algorithms," Computational Economics, vol. 43, no. 2, pp. 133–157, 2013. [Online]. Available: http://dx.doi.org/10.1007/s10614-013-9392-9
[18] J. Berk et al., Fundamentals of Corporate Finance, 2nd ed., Prentice Hall, USA, 2012, p. 335.
[19] S. G. Cecchetti and K. L. Schoenholtz, Money, Banking, and Financial Markets, 4th ed., McGraw-Hill, 2015.