Impact of The Sectorial Concentration of Credit Risk in The Profitability and Capital of Commercial Banks An Applied Study on The Housing Bank of Jordan and The Jordan- Kuwait Bank
AbstractThe concentration risk in the loan portfolio is one of the most important risks facing the management of the bank when granting loans and the resulting from the focus on dealing the bank with single borrower, or a particular economic sector, or certain geographic areas with sensitivity to economic factors, which expose the bank to significant losses.
Basel committee on banking supervision and the regulatory authorities concerned with this type of risk by identifying credit limit per client or the concentration in a particular activity. Also concentration with an increase of capital and enhanced its quality to increase the ability of the banks to bear losses during periods of cyclical economic fluctuations.
The study concluded a strong inverse relationship between the degree of sectorial concentration in the loan portfolio and profitability of the portfolio as well as a strong inverse relationship between the degree of sectorial concentration in the loan portfolio and the capital of commercial banks.
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