Higher Interest Rate & Credit Risk Management: Insights for Pakistan's Banking Sector from Us Silicon Valley Bank

Authors

  • Munazza Saleem University of Lahore, Pakistan.
  • Omar Masood University of Lahore, Pakistan.

DOI:

https://doi.org/10.52131/joe.2023.0504.0173

Keywords:

Interest Rate, Credit Risk Management (CRM), Bank Performance, Nonperforming Loans (NPLs), Nationalized Commercial Banks (NCBs), State Bank of Pakistan (SBP), KIBOR (Karachi Interbank Offer Rate), MCR (Minimum Capital Requirement), Silicon Valley Bank (SVB – US Commercial Bank)

Abstract

This paper examines the latest interest rate trends and credit risk management for the performance of Pakistan’s banking industry and drawing lessons from the default of Silicon Valley Bank. In the ever-evolving landscape of the banking industry, the delicate balance between interest rates and credit risk management emerges as a pivotal force shaping the sector's performance. This research provides a roadmap for financial institutions to harness the moderating influence of interest rates on credit risk, ultimately enhancing performance and resilience. Pakistan's banking industry must learn from the experiences and apply them to their own risk management practices. The study emphasizes the need for enhanced risk assessment frameworks, including thorough borrower evaluation, stress testing, and scenario analysis. It was conducted by well-structured questionnaire from a sample of 230 seasoned, experienced employees of top ten banks of Pakistan. The results of multiple regression showed that three variables: Credit Risk Management (CRM hereafter), Bank Performance and Interest rate are interconnected, statistically significant, affect each other and interest rate contribute in performance and strengthen CRM techniques. The study is quite useful for understanding and comprehending the changes in Pakistan’s banking industry over the past and in the latest scenarios of higher interest rates.  Future contribution will be that this research will supply the foundation for other researchers who wish to dig into monetary policies and related disciplines. 

Author Biographies

Munazza Saleem, University of Lahore, Pakistan.

Scholar, Department of Accounting and Finance

Omar Masood, University of Lahore, Pakistan.

Professor, Department of Accounting and Finance

Downloads

Published

2023-12-18

How to Cite

Saleem, M., & Masood, O. (2023). Higher Interest Rate & Credit Risk Management: Insights for Pakistan’s Banking Sector from Us Silicon Valley Bank. IRASD Journal of Economics, 5(4), 966–983. https://doi.org/10.52131/joe.2023.0504.0173