The impact of credit concentration risks on bank profitability

an applied research on a sample of Iraqi private commercial banks

Abstract

Credit concentration risk is a form of credit risk that occurs as a result of the concentration of credit granted by the bank on specific borrowers, a specific economic sector, or a specific geographical area, which exposes the bank to large losses in the event that borrowers fail to pay, so banks’ departments must take adequate measures to avoid risks  Concentration, such as diversifying the credit portfolio and determining the credit ceiling for the credit granted, by adhering to the controls specified by the regulatory authority.  Since the aim of this research is to show the nature of the relationship between the risks of credit concentration and the profitability of the banks, the research sample, the research was conducted on a sample of private commercial banks in relying on the financial statements of the banks during the period (2016-2021), and for the purpose of achieving the goal, it was used The Herfindahl Hirschman index to measure the degree of concentration in the credit portfolio. Statistical analysis of the data was also used, and the most prominent finding of this study is the high degree of credit concentration of the research sample banks.  Through statistical analysis, it was found that there is no relationship between the risks of credit concentration and the profitability of the sample banks.