1st ICARE Student's Conference - 2015

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The effects of corporate governance on financial performance
(Department of Accountancy, University of Kelaniya, 2015) Perera, N.
Attention to corporate governance has quite a long history since the seminal paper on the subject of the “principal – agent problem” by Meckling (1976). They argued that the existence of the principal – agent problem as a consequence of the separation of ownership and control raises a conflict of interest between the interests of managers and shareholders. The financial crisis in 2008 and high sketch financial dishonours tends to have concentration of academic researches, policy makers, regulatory institutions and investors to study the level of corporate governance practices and its effect on firm’s financial performance. Mostly, the quality of corporate governance can be assessed on the basis of the principals of disclosures and transparency, relationship with stakeholders including shareholders, policies and compliance, structure and the characteristics of board of directors and the ownership and control structure. According to Black (2006) worthy corporate governance practices strengthen the firm financial performance. This research empirically examines the quality of corporate governance (CG) practices in Sri Lankan listed private banks and their impact on firm’s financial performance in the context of an emerging market such as Sri Lanka. To evaluate the level of corporate governance practices at an identified firm, this study construct a corporate governance index (CGI) which involves four scopes: disclosure and transparency, composition of the board of directors, shareholders’ rights and investor relations, ownership and control structure. Based on a sample of 10 private banks listed on the Colombo Stock Exchange (CSE) in Sri Lanka, the effects of corporate governance on financial performance are assessed. Tobin’s Q is used to evaluate the firm’s financial performance.
The effect of leadership style on employee satisfaction
(Department of Accountancy, University of Kelaniya, 2015) Chamika, M.W.
Leadership style is one of the most important factors for organization and employee performance. Therefore very important to find the impact of leadership style on employee job satisfaction and as well as on firm financial performance. There are three types of leadership styles. Transformational leadership style was seen to have a positive effect on various facets of employee job satisfaction. Transactional leadership also turned out to be perceived as having a positive effect on different facets of employee job satisfaction. So did laissez-faire leadership Sanders (2007). Objective of this research is to found the influence of Leadership style to the employee job satisfaction. According to this research the dependent variable is employee job satisfaction and Independent Variables are Leadership Styles. Relating to this research topic other researchers use the primary sources to collect evidence of dependent variables and secondary data to collect evidence of independent variables. Given the presence of multiple dependent variables, this research uses ANOVA to analyze the effect of leadership styles on employee satisfaction and employee performance. Employee job satisfaction was seen to have a positive effect on the various aspects of employee job performance analyzed (Turner & Muller, 2005).
Influence of corporate social responsibility on firms’ profitability
(Department of Accountancy, University of Kelaniya, 2015) Koshila, T.G.S.
Now-a-days Corporate Social Responsibility is gaining prominence among the organizations of various fields. Organizations now are emphasizing on CSR initiatives by integrating their business operations with the CSR activities to sustain in this competitive world. This study is based on secondary data collected through the company annual reports and company guides. In some cases, some data and information was collected from the websites of the sampled firms, different articles and papers. Data were collected for last Six year periods. To measure the profitability data were obtained through annual reports of selected Five Banks. The main purpose of this study was identifying the relationship between Corporate Social Responsibility and firms‟ performance. The relation between CSR activities and Firm value .more important is, perhaps, the lack of understanding about the channels through which CSR affects Firm value. There is a direct link between CSR and Firm value in this show, impact of CSR on Firm value depends on the ability of CSR to influence stakeholders in the Firm. In order to answer these research questions, quantitative method will be used. Furthermore qualitative analysis also conducted to find out what are fields banks invested as CSR. Bank wise analysis was conducted and finally goes for a conclusion of sector.
Impact of fair value disclosure of financial instruments in a bank for the fair presentation
(Department of Accountancy, University of Kelaniya, 2015) de Silva, U.
This research is based on the study of the impact of fair value disclosure of financial instruments in a bank for the fair presentation. Study whether it affects to the decision makers. For many years, users of financial statements have sought relevant and timely information about financial instruments and offbalance sheet items and activities. It is believe that fair value measurements and recognition of these values in the financial statements, along with adequate disclosures, will provide necessary information to evaluate properly an enterprise’s exposures to financial risks, as well as rewards (Anonymous, 2002).It is mandatory requirement by IFRS 7, firms to disclose fair value estimates of financial instruments. This paper contributes to assess the accounting practices of disclosure requirements of fair value of financial instruments in Sri Lankan banks. Whether fair value reporting reflects the economic reality by showing the volatility inherent in the values of financial instruments given changes in market conditions and operations of the enterprise (Anonymous, 2007). There are some important conceptual and practical issues relating to the reliable determination of fair value, it is better to first require full fair value disclosures before contemplating a shift to full fair value recognition in financial statements. That would enable investors, creditor, preparer, auditors, and regulators to learn from experience (Chea, 2011). This research is based on the secondary data. Secondary data will be collected by analysing the financial statements of 25 banks in Sri Lanka for the period of 5 years and referring research studies, empirical reports, and articles.
Employee performance appraisal and its implication for organizational growth
(Department of Accountancy, University of Kelaniya, 2015) Jayarathne, I.
Performance means “a basic instructional method in which the trainee is required to perform, under controlled conditions, the operation, skills, or movement being taught” (Tracey,1998:391). Performance Appraisal has been considered as the most significant and indispensable tool for an organization (Sanjeet,2009). Organizational performance and its resultant efficiency and effectiveness can only be achieved when individuals are continuously appraised and evaluated. The inability of organization to install an effective performance appraisal strategy has hindered them from achieving competitive advantage which they require more now than ever before (Chris,2011). Organizations should stop giving less attention to the evaluation of their employees and recognize that organizational training needs can only be identified from performance appraisal outcomes. It is an invaluable tool but in the hands of human resource management officers to continuously evaluates and audits the performance of its employees in other to help organizations win competitive advantage (Obisi.2011). This paper seeks to assess the impact of employee performance appraisal on the organizational growth and will concentrate on examine the effect of the performance appraisal on the organizations. The data used for the study is primary data collected through the help of questionnaire filled by the samples and the secondary data is collected through audited financial statements. The data will be evaluated with the help of statistical tools that is descriptive statistics, regression, correlation and residual analysis. The importance of findings of this research is to assess whether there is a noticeable effect of the performance appraisal on the organization.
The impact of customer retention and customer service quality on customer satisfaction in the Sri Lankan banking sector
(Department of Accountancy, University of Kelaniya, 2015) Madushanka, G.G.A.S.D.
It is obvious that customers are important stakeholders in organizations and their satisfaction is a priority to management. Customer satisfaction has been a subject of great interest to organizations and researchers alike. In recent years, organizations are obliged to render more services in addition to their offers. The quality of service has become an aspect of customer satisfaction. It has been proven by some researchers that service quality is related to customer satisfaction. Others used service quality dimensions to evaluate service quality. s. The emergence of new forms of banking channels such as Internet banking, Automated Teller Machines (ATM), phone banking and also maturing financial market and global competition have forced bankers to explore the importance of customer loyalty. (Ganjinia, Gilaninia, & Tajani, 2013) Therefore, studies need to focus on the changing role of the banking system and its dynamic financial market. This study will be undertaken with the objective of finding out the impact of the service quality on customer‘s satisfaction in banking sectors. For this study, Quality of services will be evaluated by reliability, functionality, responsiveness service design and assurances, and also reviewed with help of the GAP (SERVQUAL) analyze. Primary data will be collected through by developing self-administered questionnaire from the selected customers. Formal Interview and focus group discussion will be taken place to find out the influences on purchasing. The data will be contained the personal details, demographic details and perception of Customers on all dimensions of service quality. Such analysis will be helpful to guide to actions that must be taken by the service provider to retain it’s predict customers.
Association of financial practices and performance of the small sized enterprises in Sri Lanka
(Department of Accountancy, University of Kelaniya, 2015) Manike, H.M.S.W.P.
Small and medium size enterprises (SMEs) involve with economy through contributing to growth of gross domestic product (GDP), in contributing to decrease unemployment, creating innovative and so on. But to development of SMEs, it is needed to effective record keeping, efficient use of accounting information to support financial decision-making and the high quality and reliability of financial data, effective financial management practices and use of SLFRS for SMEs. The objective is to find out wheher the finacial practices of SMEs have any significant relationship with performance of companies.For this analysis, categorize SMEs accordinga to World bank classification that is based on number of employees.Up to 50 employee from 10 identify as small business and up o 300 from 50 identify as medium size companies.The data which required for the analysis are collected through questionnaire and reffering relevant financial statement of the selected companies. Firstly, questionnaire are used to identify how the SMEs uses financial practices.In here consider about preparation of financial statement , auditing financial statement , control inventory , inventory management , utilize the computer system to repoting transaction. Secondely, financial statement are obtained for 5 years period to analyse the relation between finacial pracices and performance through financail ratios. This study expect to find out firstly. the differntion of financial practice between small and medium size enterprises. Secondely, there is a significant relation between fianacial practice and performance of enterprices.Finally through this analysis expect to indicate the significance of financial practices to SMEs to improve SMEs financial performance.
Effect of financial leverage on firm size in Sri Lankan manufacturing industry
(Department of Accountancy, University of Kelaniya, 2015) Waniganeththi, W.V.D.A.M.
Companies differ in the use of financial leverage since it depends on a number of factors such as the size, nature of product, capital intensity, technology, market conditions, management attitude etc. Corporate size seems to be one of the most theorized determinants of financial leverage. Each company uses deferent level of financial leverage. But not all the companies are achieved success. Some corporates are achieved high market shares & growth rate. But some firm which has faced bankruptcy because they take more debt than the ability of repayment. There for financial leverage affect to the success of the company. In Sri Lanka, many companies they do not know how to maintain capital structure. So we won’t to known how to maintain capital structure on firm size. The purpose of this Research is to investigate, from a manufacturing market perspective, the firm size as a determinant of corporate financial leverage. Take 5 years data from 3 difference size firms, regression model is used to estimate the relationship between financial leverage and firm size. This research shows how firm size affects to financial leverage in Sri Lankan manufacturing industry.
Impact of capital structure for business performance in Sri Lanka
(Department of Accountancy, University of Kelaniya, 2015) Fernando, W.R.S.
The discussion about the optimal capital structure has been a main topic in corporate finance from several years in Sri Lanka. Capital structure defines as a combination of debt as well as equity in an organization. Organizations have multiple financing sources. It can be categorize into two sources, the internal financing which includes common stocks, preferred stocks, reserves and retained earnings. Another source called external financing which consists short and long term loans and bonds issuance. It is challenging for organizations to identify the right mixture of debt and equity to achieve organizations goals. This research paper will examine the relationship between capital structure and business performance of public listed companies in Sri Lanka. The multiple linear regression and correlation were used to examine the relationship between capital structure and business performance. The sample of the study consisted of 20 public listed companies in Sri Lanka. This analysis is done by analyzing the financial statements of these companies from 2010-2014. Another expected Finding is the firm characteristics factors which also influence on business performance. The outcome of the statistical analysis made known that TDR and STDA has significant negative influence on the organization performance of business evaluated by ROA. The relationship in between ROA and TIE is positive as well as significant. However, DER and LTDA have negative but insignificant influence on ROA.
Application of Sri Lanka accounting standards in small & medium sized enterprises
(Department of Accountancy, University of Kelaniya, 2015) Nishanthi, W.P.L.
Small and Medium Enterprises (SMEs) play an important role in both developed countries and developing countries. It contributes to the growth of the economy through employment generation, new venture development and by opening up new avenues for the growth in the economy. The Central Bank of Sri Lanka (1998) had stated that inadequate capital, inadequate institutional credit facilities, use of outdated technology, improper accounting techniques, inadequate sales promotion competencies and inattentiveness of small businesses are the main problems faced by the small businesses in Sri Lanka. Huck and McEwen (1991) argue that 12 competency areas such as starting a business, planning and budgeting, management, marketing/selling, advertising and sales promotion, merchandising and finance and accounting is needed for small business success. This study is done in relation to the factors leading to non-compliance with Standard accounting practices by the small and medium scale enterprises (SMEs) in Sri Lanka. The main objectives of the study focused on identifying the nature of the accounting practices and the factors leading to non-compliance with standard accounting practices by the SMEs. Efforts are made to examine the possible causes for noncompliance with the Standard accounting practices by the SMEs in Sri Lanka and the researcher expects that this study would fill the knowledge gap. The researcher uses structured interviews to collect data and selects 30 SMEs and 10 auditors for the study. Two interview guides will be prepared by the researcher for the SME owners, and for the Auditors. In the conceptual model the non-compliance is considered as the dependent variable and the independent variables are the cost of adherence to accounting standards, knowledge and competence of the owners, lack of qualified employees, relevance of standard guidelines and parties interested in the financial reports. The key finding is that, higher cost of adherence to accounting standards, lack of knowledge and competence of the owners, lack of qualified employees, and unavailability of parties interested in the financial reports other than owner is leading to non-compliance and the relevance of standard guidelines does not have a relationship with non-compliance. The non-compliance with Standard accounting practices is not only due to SMEs ‘can’t comply’ with them, but also due to not complying with them even when they are able to comply. The researcher finally makes recommendations to the policy makers, government and professional accounting bodies to design the policies and frameworks to ensure SMEs’ compliance with standard accounting practices.
Importance of working capital management and relations with the performance and liquidity positions of the company
(Department of Accountancy, University of Kelaniya, 2015) Sanka, G.K.C.N.
In this study, I empirically investigate the effect of working capital management on firm’s financial performance and liquidity position of the company in an emerging market. It’s hypothesized that working capital management leads to improved profitability. My data set consists of firms listed in the Cyprus Stock Exchange for the period 2000-2014. Using multivariate regression analysis, our results support my hypothesis. Specifically, results indicate that the cash conversion cycle and all its major components; namely, days in inventory, day’s sales outstanding and creditor’s payment period - are associated with the firm’s profitability. The results of this study should be of great importance to managers and major stakeholders, such as investors, creditors, and financial analysts, especially after the recent global financial crisis and the latest collapses of giant organizations worldwide. This paper seeks to access efficient utilization of the firm’s resources, as it relates to working capital management, means that executives should find effective and efficient ways to deal with the cash available for the day-to-day operations in order to achieve the optimum impact. Good working capital management leads to increased cash flows, and thus leads to lesser need on external financing; therefore, the probability of default for the firm is reduced. A key factor in the working capital management is the cash conversion cycle (Deloof, 2003). Cash conversion cycle is defined as the time lag between the purchasing of raw materials or rendering of services and the collection of cash from the sale of goods or services rendered. The longer the lag, the greater the investment in working capital, and thus the financing needs of the firm will be greater. Interest expense will be also higher, which leads to higher default risk and lower profitability.
The relationship between interest rates and inflation in Sri Lanka
(Department of Accountancy, University of Kelaniya, 2015) Dhanapala, S.G.L.M.
There is direct relationship between interest rate and inflation we can identify the above relationship according to this research. There can investigate the long-run and the short-run relationship between above interest rate and inflation in Sri Lanka. This paper will examine the long-run bivariate relationship between the short-term interest rates and the inflation rate in Sri Lanka. There have been numerous studies, which has looked into the Fisher effect in USA and Canada. Recently there has been research carried out on European Union countries and even some Latin American countries. The objective of this paper is to consider the relationship between short-term interest rates and inflation in the relatively small Indian sub-continent economy of Sri Lanka. There have been very little or no research carried out on Fisherman effect in Sri Lanka. The first section the paper will look at similar research done (on the Fisher’s effect) in other countries. Different methodologies adopted by the researchers will also be looked into. The second section will look at the methodology used; the relevant tests and the next section will concentrate on analyzing the Sri Lankan data. An appropriate model will be built based on the test results. The 3-month Government TB rate will be used as the short-term interest rate and the year-on-year movement in the consumer’s price index (CPI) will be used to calculate the inflation rate. There seems to be relatively little or no research done on the Fisher relationship in Sri Lanka. One of the key finding that I intend to make is to discover whether the Sri Lankan data point towards co-integration between Interest rates and Inflation. Since there is considerable amount of political influence over the governance of interest rates and since successive government policies have a larger impact on inflation, this would be an interesting finding.
The effect of the working capital management on profitability of Sri Lankan companies
(Department of Accountancy, University of Kelaniya, 2015) Dharmasena, N.W.G.N.P.
Most firms have a large amount of cash invested in working capital, as well as substantial amounts of short- term payables as a source of financing. Therefore working capital mainly affect for the company profitability and liquidity. A well-managed working capital promotes a company’s wellbeing on the market in terms of liquidity and it also acts in favor for the growth of shareholders value (Jeng - Ren, Li & Han-Wen, 2006). Management of these short- term assets and liabilities warrants a careful investigation since the working capital management plays an important role for the firm’s profitability & risk as well as value (Smith, 1980). The main objective of this research is to find out the relationship between working capital management and company profitability. To collect the required financial data of these firms was obtained from the companies’ annual reports from CSE. Consequently, the sample data begins in 2010 and ends in 2014. The effects of working capital management on the firm's profitability are modeled using the following OLS regression equations to obtain the estimates. This study expects most of the Sri Lankan companies have large amounts of cash invested in working capital. It can be expected that the way in which working capital is managed will have a significant impact on profitability of those firms.
The influence of service quality on customer loyalty in telecommunication Industry Sri Lanka
(Department of Accountancy, University of Kelaniya, 2015) Chathurika, H.A.M.
The main objective for the study is to assess how the customer satisfaction influences the customer loyalty. Services are rapidly growing into a major contributor to the Sri Lankan as well as the world economy, providing an ever increasing proportion to their GDPs. In this no exaggeration, then to say, that will be the key to long term economic success. As such as, it is essential stage to study why customers switch service providers The purpose of this study is to find out why customers switch producers in telecommunication industry in Sri Lanka. The objective of this study is to find out how the variable service quality will leads on customers switching. Telecommunication industry is one of the fastest growing sectors in Sri Lankan Service industry. There are Five major industries available in targeted areas. Primary data will be hope to collected from the customers through well designed questionnaires. Also focus group discussion and some of interview take placed to justify the findings. Targeted area is Gampaha district and sample size is 300 questionnaires. Interview and focus group discussion have taken place to find out the influences on purchasing. Hypothesis has formed as perceived higher level of service quality negatively correlated switching behavior. Collected data will be analyzed by quantitative techniques and MS excel sheet used to interpretation.
Political changes affect to business success
(Department of Accountancy, University of Kelaniya, 2015) Senanayaka, D.J.
During the latter half of the twentieth century an increasing number of developing countries have been exposed to internal political conflict and consequent civil war. The developing countries have also been experimenting with different policy regimes and planning exercises to achieve economic development. How did the different actors sustain and protect their own interest during he war and wha source of alliances if any, were formed and for what reason? Why did the conflict move towards were ceasefire and peace talks in 2002? What are the political economy consideration for peace and Reconstruction? For that evaluate Gross Domestic Product ratio, Population ratio, Gross National Product ratio. And use Central bank annual reports for finding variance. They identify unemployment rate of Sri Lanka. Some data set taken from paper on the Sri Lankan Security Sector prepared by K.M De Silva for the clingendael Institute in 2002. The purpose of this paper was to contribute to the current debate on the relationship between economic development and political conflict in developing countries through a case study of the ‘twin political conflict’ in Sri Lanka. The strategic development problem faced by developing countries is not limited only to the provision of basic needs to its population. The overall political conflict in Sri Lanka has its roots in the contradictions in the country’s historical development process, resulted from policy errors
The empirical relationship between board size and firm performance of listed companies in Sri Lanka
(Department of Accountancy, University of Kelaniya, 2015) Weerakkodi, W.A.S.L.
A many studies investigate to the link between board size and firm performance in listed companies in Sri Lanka. The evidence on this area is very thin in Sri Lanka being a developing countries. The structure and size of the board and its impact on the performance of the firm is one of the most discussed issues of corporate governance. Board size, gender, duality, education, board age and Independent were the board structure variables, and ROA and ROE were the measurement device of firm Performance. Good corporate governance practices are regarded as important in reducing risk for investors, attracting investment capital and improving the performance of companies. Sri Lanka does not have large number of studies on corporate governance issues. Therefore, these kinds of studies on corporate governance issues will help to improve the corporate governance practice in Sri Lanka. Therefore, this study will provide a new perspective in studying the relationship between board size and firm performance. The purpose of this study is to examine the relationship between board size and firm performance in Sri Lanka for the extent of compliance of the CBP recommendations by the companies. Further, to investigate the relationship between the CEO duality and firm performance, to investigate the relationship between proportion of non-executive directors and firm performance.
Corporate social responsibility practices and profitability of the manufacturing companies in Sri Lanka
(Department of Accountancy, University of Kelaniya, 2015) Lakshitha, W.R.
We are living in a world consist with numerous problems related to environment and society. Corporate Social Responsibility (CSR) is a means to sort out these problems to some extent because business is a part of society. The main purpose of the every business unit is earning more and more profits but social responsibility is an obligation to the people living inside and outside the business organizations. All the companies deal with the different group of society such as owners, employees, customers, government, suppliers etc. The responsibility of business, which includes satisfaction of these parties along with the owner, is called social responsibility of business. CSR typically includes issues related to business ethics, community engagement, global warming, water management, mange the use of natural resources, human rights etc.(Rani & Hooda,2013). So, in order to get sustainable development and to survive in this competitive world, the organizations need to establish a close and good relationship with society. The objective of this research is to find out the relationship between corporate social responsibility (CSR) practices and profitability of the manufacturing companies in Sri Lanka. This study will examine the relationship of CSR and profitability of the companies in a different view and different method. For investigating the listed manufacturing companies in Srilanka stock exchange market by using primary sources (Questionnaires, interviews) and secondary sources (financial statements, related documents)as well as time series and the correlation test will be applied in MS-Excel. It is expected to find that makes clear relationship in the aspect of identifying the costs and benefits of CSR, and how those costs and benefits will affect the accounting earnings or profits of the firms.
The impact of capital structure on profitability of banks in Sri Lanka
(Department of Accountancy, University of Kelaniya, 2015) Tharangani, D.L.M.
The concept of capital structure means the way a firm finances its assets by the use of a mix of debt and equity. Capital structure decision is the important one, because the profitability of an enterprise is directly affected by such decision. In the financing decision the manager is concerned with determining the best financing mix or capital structure for his firm. According to Buser (1981), the capital structure decision of a bank is similar to that of a non-financial firm. The objective of this study is to examine the impact of capital structure on profitability of five banks in Sri Lanka from 2010 to 2014, to find an optimal capital structure that would be associated with the best performance and to suggest the banks in the way to increase profitability through adapting a better strategic framework of capital structure.. All data for this research will be collected by secondary data through financial statements. Based on the findings of the study, there are a few key points that can be used to conclude this study. It is very important that the total debt is the determining factor of profitability in the Banking Industry of Sri Lanka. The outcomes of the study may guide banks, loan-creditors and policy planners to formulate better policy decisions as far as the capital structure is concerned. Further, the study reinforces and refines the body of knowledge relating to capital structure and profitability in Sri Lankan Banks.
The effects of corporate governance on firms’ credit ratings
(Department of Accountancy, University of Kelaniya, 2015) Karunarathne, R.M.H.L.
We investigate whether firms that possess strong corporate governance benefit from higher credit ratings relative to firms with weak governance. A firm’s credit rating reflects a rating agency’s opinion of an entity’s overall creditworthiness and its capacity to satisfy its financial obligations Credit agencies are concerned with governance because weak governance can impair a firm’s financial position and leave debt stakeholders vulnerable to losses To structure our analysis, we adopt a framework developed by Standard & Poor’s for assessing firms’ corporate governance structures and practices. In the case of Sri Lanka that have thoroughly validity because of investors will not be satisfy with the week financial position to invest of the firms. Therefor this has a practical validity to the firm to maintain their financial stability in order to satisfy investor’s preference. So as I develop this to exhibit what kind of validity that the firm has to the corporate governance on firm’s credit ratings. Rather I try to come up with the sensible area of this topic in order to give a clear and feasible view of the topic.
The impact of credit risk management on the performance of banking sector
(Department of Accountancy, University of Kelaniya, 2015) Abewardhana, M.A.
Credit risk management in banks has become more important not only because of the financial crisis that the industry is experiencing currently, but also a crucial concept which determine banks’ survival, growth and profitability. The aim of this study is to investigate the impact of credit risk management on the performance of banking sector in sir Lanka. Financial reports of seven commercial banking firms were used to analyze for seven years (2005 – 2011). The panel regression model was employed for the estimation of the model. In the model, Return on Equity (ROE) and Return on Asset (ROA) were used as the performance indicators while Non-Performing Loans (NPL) and Capital Adequacy Ratio (CAR) as credit risk management indicators. The findings revealed that credit risk management has a significant impact on the profitability of commercial banks’ in sir Lanka. Banks today are the largest financial institutions around the world, with branches and subsidiaries throughout everyone’s life. Commercial banks are facing risks when they are operating. Credit risk is one of the most significant risks that banks face, considering that granting credit is one of the main sources of income in banks. The management of the risk related to that credit affects the profitability of the banks. The aim of the research is to provide stakeholders with accurate information regarding the credit risk management of banking sector with its impact on profitability.