The Role of Operational Efficiency in Reducing Credit Risk and Its Impact on Financial Performance An Analytical Study of a Sample of Iraqi Commercial Banks :

Abstract

     This research aims to study the role of operational efficiency in reducing credit risk and its impact on the financial performance of a sample of Iraqi commercial banks listed on the Iraq Stock Exchange during the period (2005–2022). A sample of (8) banks, representing (32%) of the total population, was selected based on data availability and continuity. The variables were measured using the operational efficiency index (operating expenses/operating revenues), the credit risk index (loan loss provision/total loans), and the return on assets (ROA) as an indicator of financial performance. The financial analysis revealed significant fluctuations in operational efficiency and high levels of credit risk in some banks, which was reflected in the fluctuations in the return on assets. The statistical results using Excel and EViews programs and the Granger Causality test revealed the absence of stable and significant causal relationships between the three variables, with the exception of some limited periods, which indicates weak long-term statistical correlation between them. The study concludes that improving operational efficiency can contribute to reducing operating expenses and improving resource utilization, thus reducing non-performing loans and enhancing the quality of the credit portfolio. However, this effect is not statistically consistent.

Accordingly, the study recommends the development of credit risk management systems in parallel with increasing operational efficiency through the expansion of the use of banking technology and rationalization of operating costs to ensure the sustainability of the financial performance of Iraqi banks.