Bad debt collection management and its role in the profitability of commercial banks

 ( An applied study on a sample of banks listed in the Iraq Stock Exchange for the period from 2016 – 2020 )

Search submitted to

Board of the College of Administration and Economics at the University of Karbala

It is part of the requirements for obtaining a higher diploma in banking management

written by

Hani Sabah Abbas Diaa Aldeen

Supervised by

Prof. Dr. Kamal Kazem Al-Shammari

Abstract

Troubled debts are one of the most threats to the activity of commercial banks and thus affect their continuity. The reason for the growth of this phenomenon in the banking system is due to a number of factors and reasons that control the financial and monetary market. Therefore, the high rate of bad debts is evidence of the low efficiency of management, which may lead to an increase in the bank’s losses and in other times to its bankruptcy. Therefore, banks are often victims of the mistakes of their management, and accordingly these banks suffer from a shortcoming in the credit study of the loans granted, and this leads to Producing a bad bank loan that turns over time into a bad loan, and this shortcoming is manifested on the one hand by the failure to study and analyze the financial statements submitted by the bank’s clients well due to the lack of scientific and practical experience among the decision makers to grant the bank loan, and on the other hand, in the absence of field follow-up And the permanent activity of the client and the results of his work after granting him the loan by following up the financial reports, and in most cases the decision to grant the loan depends on the guarantees provided by the clients mainly. The aim of the research is to clarify the relationship between the management of the collection of bad debts and the extent of the impact of this relationship on the profitability of banks, as well as in measuring the volume of bad debts of the banks that were selected as a sample for research. From this phenomenon because of its negative impact on the profits of commercial banks, the failure to follow up on these guarantees and negligence in reviewing them will lead to the creation of more bad debts, and this will lead to reducing the role of the bank in activating the wheel of the economy on the one hand and in the investment of funds on the other hand, which will keep the bank away from performing the economic and social role required of him, which will negatively affect his profitability. Five of the banks listed in the Iraq Stock Exchange were studied for a period of five years. The method of financial analysis was used, as well as the use of the statistical program spss to reach the results.

Bad debts are a phenomenon that cannot be avoided, but it can be monitored and minimized. Therefore, establishing credit departments specialized in dealing with non-performing loans will help in the process of collection, speeding up and reducing these debts.

Keywords: bad debts, customer, profitability, bank guarantees