Evaluating Credit Management and Bad Debts in Commercial Banks in UAE

This dissertation evaluates credit management and bad debts in commercial banks in UAE, focusing on Abu Dhabi Commercial Bank. It examines the degree of risk management policies and tools adopted by the bank to mitigate various types of risk.

Dissertation
(Evaluating the credit management
and issues of bad debts in commercial
banks in UAE)
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Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................4
1.1 Chapter Overview..................................................................................................................4
1.2 Overview of the topic...........................................................................................................4
1.2 Background of the organisation.............................................................................................5
1.3 Problem statement.................................................................................................................5
1.4 Research rational...................................................................................................................5
1.5 Research aim and objective...................................................................................................6
1.6 Research question..................................................................................................................6
1.7 Outline of the methodology...................................................................................................7
1.8 Scope and limitation of the study..........................................................................................7
1.9 Significance of the study.......................................................................................................7
1.10 Structure of the dissertation.................................................................................................8
1.11 Summary..............................................................................................................................8
LITERATURE REVIEW................................................................................................................9
2.1 Chapter overview...................................................................................................................9
2.2 The concept of credit management and bad debts in context of commercial bank...............9
2.2 Evaluate the issue of bad debts and credit management within the commercial bank Abu
Dhabi..........................................................................................................................................10
2.3 Examining the degree of risk management policies and tools adopted by Abu Dhabi
commercial bank to mitigate various type of risk.....................................................................12
2.4 Analysing the risk between different bank and risk percentage of different banks of UAE
in order to make easy for stakeholders to invest in more beneficially bank..............................13
CHAPTER 3: RESEARCH METHODOLOGY...........................................................................16
DATA ANALYSIS AND FINDINGS..........................................................................................19
Thematic Analysis.....................................................................................................................19
REFERENCES..............................................................................................................................24
Books and journal......................................................................................................................24
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INTRODUCTION
1.1 Chapter Overview
The purpose of this investigation is to examine credit management and bad debts challenges in
the commercial banking sector of UAE. Furthermore, the overall study focuses on highlighting
the various issues of bad debts and credit management within the commercial bank Abu Dhabi.
Along with it, the study includes the degree of risk management policies and tools adopted by
Abu Dhabi commercial bank to mitigate various type of risk. In this chapter a brief overview of
the research topic along with a short literature review introducing the background information
relating to the investigation. After this, the problem statement, research rationale, aims, research
questions and objectives are also provided. Brief outline of research methodology, research cope,
limitations of the investigation, significance of the study and summary highlighting the main
points is given. The final part of this chapter is work structure stating the elements coverd in the
remaining chapters.
1.2 Overview of the topic
Credit management is the discipline technique that is used by the organisation to review,
analyse and settle credit requests of the business. In commercial bank, credit management is the
process that assists in monitoring and collecting payments from the customer in an effective way.
The company needs to manage its credits as it helps in minimizing the risk of bad debts that are
tied up with the debtors of the bank (Drobyazko and et. al, 2019). Good credit management also
helps in making an effective and efficient flow of cash within the banks. Commercial banks'
liquidity is also reinforced with the assistance of a credit management system. Bad debts are
explained as outstanding balances which needs to be written off by the banks. Bad debts reduce
the profitability the bank’s product portfolio and can also lead to issues with capital adequacy
resulting in default (Parhusip, 2019). The financial crises of 2008-2009 highlighted the
importance for avoiding bad debts for all the stakeholders in banking industry because one of the
causes for the financial crises was rising bad debts of sub-prime m resulting in heavy default on
their loans and loss of secondary market investors (Roeder, Palmer and Muntermann, 2022).
Thus, the current research focuses on the challenges and bad debt issue faced by commercial
bank (Kolawole and et. al, 2019).
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1.2 Background of the organisation
For the current investigation the researcher has chosen Abu Dhabi commercial bank. The
bank was founded in 1985 that provide retail commercial, Islamic banking and other financial
services in the market. The headquarter of the bank is in Abu Dhabi and there are 72 branches in
various parts of UAE (Ahmed and Ali, 2020).
1.3 Problem statement
Non-performing loans create variety of challenges for the banking industry and the overall
economy. It leads to disintermediation of bank system lending because the profitability of banks
is eroded due to non-performing loan. In addition to this non-performing loans stagnate
economic resources of the banks. These challenges impact their overall performance,
productivity and survival of banking enterprises in the market (Bai and Zha, 2022). Bad debts
and non-performing loans need to be eliminated and administered with appropriate risk
management tools because non-performing loans are entailed with different types of risks such a
lowering of profit margins and stress in the commercial banking sector leading to less funding
available for other projects (Wang, Li and Xi, 2020). Mitigation and elimination of various risks
associated with non-performing loans requires examination of risks faced by commercial banks
as well as risk percentage. Research specifically focused on the commercial banking sector of
Abu Dhabi to understand the concept of bad debt, credit management and risks of non-
performing loans is not conducted. The present investigation is focused covering the knowledge
gap about credit management and bad debts in context of the Abu Dhabi commercial bank. Apart
from this the main problem which is looked in this investigation is to examine the level of risk
management policies and instruments implemented by the Abu Dhabi commercial bank to deal
with the risks of non-performing loans.
1.4 Research rational
The major purpose to carry out the investigation is to make a deeper understanding on the
topic credit management and bad debts. The concept of credit management is important for
completing business activities of commercial banking sector effectively (Dilshan and
Karunarathne, 2021). Banks must have the operational capability to address the problem of bad
loans at an early stage. The present research is of great interest to the author as it helps in
attaining dual perspective that are personal and professional. In the assistance of personal
objective, the current investigation helps in gaining detailed knowledge about the tools and
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methods used in the research to complete the investigation in systematic manner (Alijonovna,
2019). Different research skills such as communication skill, data analysis skill and many more
being developed using the current investigation. The results from this investigation can be used
by financial professionals in the banking sector to reduce risks of non-performing loans and
deliver better outcome to very stakeholder. That is why, the current investigation is significant in
attaining dual objective in an effective manner.
1.5 Research aim and objective
Research aim:
This study aims to evaluate the credit management and issues of NPL’s in context of
commercial banks in UAE, especially focusing on Abu Dhabi Commercial Bank
Research objective:
 To critically investigate the concept of credit management and issues of bad debts in
context of commercial bank
 To evaluate the issue of bad debts and credit management within the commercial bank
Abu Dhabi
 To examine the degree of risk management policies and tools adopted by Abu Dhabi
commercial bank to mitigate various type of risk
 To analyse the risks of NLP’s between different bank and risk percentage of different
banks of UAE to make investment decisions of bankers easier.
1.6 Research question
Main question
What is the issue of bad debts and credit management within commercial banks in UAE?
Sub question
 What is the concept of credit management and bad debts in context of commercial bank?
 What is the level of risk management policies and tools adopted by Abu Dhabi
commercial bank to mitigate various type of risk associated with NPLs?
 What are the risks of NLP’s between different banks and risk percentage of different
banks of UAE to make investment decisions of bankers easier?
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1.7 Outline of the methodology
In the current investigation, researcher has opted for qualitative research method. The main
reason for this is it helps in gathering deeper insights (Phan and et. al, 2019). In addition to this
secondary data collection will be used for gathering valuable information. This will be completed
through variety of sources such as books and journals which are available online. In addition to
this he research philosophy applied in the present investigation is interpretivism philosophy
along with inductive research approach. The research strategy option used in this investigation is
systematic literature review along with using cross sectional time horizon. The data collected in
this investigation is analysed is thematic analysis.
1.8 Scope and limitation of the study
The scope of the current study is huge because it looks at the Abu Dhabi Commerciale
Bank which is one of the largest Bank in UAE and even the UAE government has purchased
high amount of shares in the company. Non performing loans have huge impact on the economy
of any region (Karadima and Louri, 2021). Since this investigation looks at the non-performing
loans its scope farther increases. The limitation associated with the boundaries of this
investigation are its geographical limitation to the commercial banking sector of UAE. This
means that the outcome of this investigation will only be limited to the commercial banking
sector of UAE.
1.9 Significance of the study
The main value of the current investigation is that it helps in identifying the importance of
managing credit and bad debts so that challenges can be minimised. The chosen topic is also
important for different stakeholders that are researchers, scholars, shareholders and financial
organisations. For scholars the present topic helps them to gain a detailed understanding about
the credit management and different types of risk that is faced by commercial banks in Islamic
countries (Robin, Salim and Bloch, 2018). For researchers the investigation is beneficially as it
helps them to use the present research as their base. Shareholders are benefiting as they get to
know about the banks who provide them more benefit when they invest in them.
Finally, the investigation helps commercial banks in the entire UAE to know about the
importance of managing bad debts and credit management to improve their overall reputation
and image (Bawa et. al, 2019).
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1.10 Structure of the dissertation
Chapter 2: Literature review: In the second chapter of the investigation, the focus is on
completing detailed literature review on the topic of the investigation to find the answers for the
research questions.
Chapter 3: Research methodology: Here, the overall research methodology including
the research philosophy, research approach, research strategy, data collection, research choice
and time horizon are provided with suitable justification.
Chapter 4: Data analysis: In this part of the investigation thematic analysis is used to
analyse the gathered secondary data effectively.
Chapter 5: Conclusion and recommendations: Finally, the conclusion of the
investigation is presented along with recommendations for the selected company Abu Dhabi
commercial Bank in context of credit mismanagement, bad debts and handling non-performing
loans.
1.11 Summary
The researcher identified the issue and problem faced by the commercial bank of UAE related to
NPLs. Inefficiency in credit management impact the liquidity position of the banks as well as
their cash flow. Various sub section helps in knowing the importance of the selected topic and
the reason for selecting the topic. It can also be said that overall research has outlined the role of
credit management and bad debts in relation to the commercial bank. With the help of present
study, the various issues of bad debts and credit management within the commercial bank Abu
Dhabi was explained in order to have better understanding. Along with it, the study presented the
degree of risk management policies and tools adopted by Abu Dhabi commercial bank to
mitigate various type of risk.
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LITERATURE REVIEW
2.1 Chapter overview
In this chapter the researcher has assessed previous empirical studies and relevant
theories which serves as the base for the whole research. This literature review looks at relevant
literature associated with credit management and bad debts in context of commercial banks in
UAE. Bad debts and credit management is also examined with the help of existing literature.
Risk management tools and policies adopted by banking organizations in UAE along with risk
management degree is examined in this literature review.
2.2 The concept of credit management and bad debts in context of commercial bank
Credit management is defined by Pilavidis (2019) as the process by financial institutions
of granting credit to the customers, setting payments terms and conditions for enabling them to
pay their bills on time and in full, recovering payments as well as ensuring customers to comply
with their credit policy. An effective credit management used a proactive and continuous process
for identifying risks, evaluating their potential for loss as well as strategically guarding against
the inherent risks of extending credit. A proactive credit management can create balanced act
where the risk is minimised, and opportunities are maximised (KULCHITTIVEJ,
PORNPUNDEJWITTAYA and SILPCHARU, 2020). Effective credit management allows the
bank to see a clear picture of their organisational finances, so they can avoid unnecessary credit
risk as well as seize opportunities. There are other benefits are also involved in credit
management. Cash flow protection is vital for financial institutions and offers main benefit of
effective credit management. It also helps in consequently reducing the possibilities that a large
amount default credits will negatively impact their business. It also helps in executing faster as
well as complete debt recovery (He, 2022).
Effective credit management system help company to determine the customer's credit
rating in advance, maintain relation with customers, detect late payments in advance, detect
complaints in due time, frequently scan and monitor customers for credit risks, improves the
DSO as well as prevent any bad debts from arising (Anggiriawan and Putra, 2021). In context of
commercial banking the rise in credit has also resulted in rising non-performing loans. The rise
of bad debts in commercial banking institutions leaves negative consequences for the banking
establishments themselves and the borrowers linked with the bank. Some factors which affect
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bad debts at commercial banking institutions include the loan to deposit ratio, financial
performance measurement through return on equity and capital adequacy.
Commercial Banks are not able to manage bad debts effectively because of poor credit risk
assessment, higher emphasis on lending on the basis of collateral, ineffective loan monitoring,
debt handling, lending products, short loan periods and absence of credit advisory practices. The
bad debts at commercial banks are also affected by the external economic environment affecting
the region. In case of financial crises period, the incomes of households, consumers and Banking
institutions face challenges, leading to higher and debt ratio at commercial banking institutions.
On the other hand, strong growth and recovery of the economy, income of businesses,
households, commercial banks and consumers improves lowering bad debt ratio.
Commercial Banks are subject to government’s control mechanism on ratio of capital and
enabled degree of risk, which means that higher capital rate usually relates to increased degree of
risk. Therefore, commercial banks, focus on increasing the desired profitability rate by
increasing leverage and accessing risky sources of leading to higher bad debt ratios. This
showcases that equity to total assets has positive influence on debt ratio bad debt in case of
commercial banks. Another explanation for this positive link is that bankruptcy cost is lowered
by banks when dealing with high risks investment with the help of increase in capital ratio. Thus,
the expenditure associated with high risk investments and rise in bankruptcy fee is handled by
enhancing the capital ratio. Wren bank is at high risk the capital ratio of the bank is increased
positively influencing the amount of bad debts faced by the bank.
2.2 Evaluate the issue of bad debts and credit management within the commercial bank Abu
Dhabi
COVID-19 pandemic has negatively impacted the economic environment of the world
including UAE. Commercial Banks are alert about increase in bad debts and Non-performing
assets in their product portfolios (Salisbury, 2020). Thus it is important for commercial Banks,
now to face the challenges associated with bad debts and credit management. According to
Badunenko, Kumbhakar, and Lozano‐Vivas (2021), bad debt defines the loans outstanding
balance own which is no longer deemed recoverable and needs to be written off. It is an expense
which bank incurs once the repayment of credit earlier extended to customer is estimate to be
uncontrollable. It is a contingency which must be accounted for all commercial banks in UAE.
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Banking is a serious business which involves transacting with the customer’s money and
generating returns from them.
The credit manager of a bank is a person employed by organisation for managing credit
department and making decisions which is concerned with credit limits, acceptable levels of risk
and enforcement actions with their customers (Almaqtari, et.al., 2019). The issue with the credit
risk management is seen with the inefficient of the data management. It solutions need the ability
to securely store and categorise search based data as to avoid potential outdated information. The
bank is concerned with efficient disbursement and amortization which relates to poor evaluation
of customer. In the commercial banks the improper evaluation of profits by banks is situation
where funds become the inadequate for the projects affecting the loan resulting to bad debts. In
the commercial bank bad debt brings lot of trouble which needs urgent solutions as to avoid the
damage. The slow debt collection will make the decrease of bank cash quantity which hampers
the expanding of their lending and makes any profit. The organisation will able to get the loans
for their operations which can damage the development of country economy.
As per view of Budagaga (2020), credit management is the discipline of reviewing,
analysing and settings the terms in requests for credit for a business. The sale of goods and
services is commonly made of credit with payment to come sometime after delivery. The bad
debt is uncontrollable account expense which occurs due to debtor not having money to pay as
company is going into liquidation or insolvency. The cause of bas debt is due to poor money
management or issue with personal spending. There are variety of issues which causes debt
within commercial bank Abu Dhabi. The low income or underemployment as some people have
low income jobs which is find hard for the people to meet their bills or put their money into
savings.
The creditor is not able to collect the debts to some reason or occurring when individual
has poor financial management and not capable to pay debt on time affects the commercial bank
profitability and reputation (Jadidi, and et.al., 2020). The political instability indirectly
contributes to bad debts in commercial bank by the government as it refuses to pay in some
projects and affecting repayment of the loan borrowed. In the assets settlement the difficulty is
faced as to get the loan approval for which debtor has to pay deposit asset in the bank depending
on the amount of loan. When it becomes bad debt, commercial bank tries to settle those deposit
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assets to get the money back which cause problem due to difference between several legal
documents.
2.3 Examining the degree of risk management policies and tools adopted by Abu Dhabi
commercial bank to mitigate various type of risk
In accordance to Gulati, Goswami, and Kumar (2019), risk management is the procedure
of identifying, assessing and controlling financial, legal and security risk to organisation capital
and earnings. The commercial banks are the pillar for economic development which requires to
provide importance to risk management in day-to-day operations. The risk is referred as
ambiguity which is related to specific future event or consequences. In the commercial banking
the key focus of risk management is to determine, control and eliminate those risk which could
adversely impact on profitability along with on stakeholder’s relationship. The commercial bank
has to face several types of risk for which there is use of tools and techniques as to mitigate
them. There is general business rule with the increase of the profit there is increase in risk (Qazi,
and Simsekler, 2021). Every commercial bank has the credit risk policies for controlling the bad
debt rate and credit risk. This policy involves the risk identification, risk measurement, risk
control techniques etc. The letter of credit can be taken for mitigating the risk that means
customer will approach the bank to ask an agreement that guarantees the creditor to receive
payment by the due date. The risk return pricing is the fundamental tent of risk management in
which borrowers with weak financial position placed in high credit risk category. To price the
credit risks the bank should evolve scientific systems. The loan pricing should be linked to risk
rating or credit quality.
As per view point of Hassan, Adel, and Sayed (2021), risk management tools and
techniques are the things which is used for helping to control risk in company. It helps
commercial bank Abu Dhabi as to identify, evaluate and reduce risk. It provides the organisation
a way to create best possible risk management strategy. The commercial bank can create a multi-
tier credit approving system in which before sanctioning loan it is reviewed by the officer. This
helps in reducing the chances of any new credit risk. Among the types of banking risk, credit risk
is the biggest threat which banks has to prevent. It is very close to the bad debt which occurs
when debtors cannot pay back their loans & interest for the bank. To prevent this risk, the
commercial bank take use of several solutions known as credit risk management. The risk
transfer is helpful strategy in mitigating the risk by moving to another third party which can be
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outsourced, move to an insurance agency. It is considered as best option whine it comes to
reduce for future damage (Yao, and Song, 2021). The risk rating is effective technique for
commercial banks to mitigate risk as banks can have comprehensive risk scoring which serve
single point of diverse risk factors of counterparty. In rating to facilitate a substantial degree of
standardisation is needed across borrowers. The risk rating system should be designed to reveal
the overall risk of lending, critical input for setting pricing and non-price terms of loans as also
present meaningful information for review and management of loan portfolio.
2.4 Analysing the risk between different bank and risk percentage of different banks of UAE in
order to make easy for stakeholders to invest in more beneficially bank
As per Mensi (2019), the commercial banks who established themselves in the UAE have
implemented the techniques evolving around risk management of various types of threats. The
observation of such commercial banks, disclosed that the unified problem they were facing, was
related to the credit risk, along with the identification of the risk management techniques which
the administration applies, namely, inspection performed by the branch managers and analysis of
the financial statements of the company. Risk management techniques defines establishing
standards, credit score analysis, risk rating and other similar tools, to mitigate the risks which
arise during the internal or external proceeding of the banks. On the basis of the literature review
presented above, the following suggestions can be proposed to summarize and understand the
significant revelations related to risk management in commercial banks:
 The efficiency through which the profit is earned by the entities, is crucially sensitive to the
credit risk along with the insolvency risk, however does not significantly influence the
liquidity risk or the mix related to the loan products.
 The risk management is considered as the first step towards achievement of financial
liberalization, which defines the techniques focused on diluting the legislation control
systems, over the institutional structures, instruments and operations performed by the
agents in different financial sectors.
 Being a commercial bank in UAE or any other country, they may often face the credit risk,
which is most susceptible to the loans, which are of long term in nature and creates
unfavorable situations for the banks together with individuals appointed to perform relevant
operations for such bank.
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 The risk management can be effectively and systematically concluded, if the previously
mentioned techniques, that are, inspection by the branch managers and financial statements
analysis, are sincerely followed. These two methods often present the banks with a clear
view about the market position and credit worthiness of the borrowers.
 The relation between the minimum capital which the banks must possess and the position
of the bank in context to its lending power, also referred to as the ‘risk weight’, in relation
to an off-balance sheet contract, will be affected by the size of the bank and would be
considered appropriate accordingly.
The UAE has 46 commercial banks, out of which 21 are national banks and the remaining are
branches of foreign banks. One of the financial institutions which support risk management for
commercial banking establishments in UAE is the UAE central Bank. The UAE Central Bank
regulates financial and banking sector in the country offering suitable guidelines and strategies
which can improve the Banking industry and facilitate economic growth. In the year 2018 the
central Bank of UAE introduced the risk management regulations for commercial Banking
establishments currently operating in UAE.
According to the regulations enforced by the central Bank, risk management, internal
audit and compliance are essential control in the Banking sector of UAE. The advantage of these
government enforced risk management regulations is that they help Banks manage legal risks by
following government regulations. On the other hand, the disadvantage, associated with the risk
management regulations being implemented by central Bank of UAE is the increase in
government oversight in private commercial Banks.
The Central Bank of UAE aims to ensure that the risk management approaches and practices
followed by commercial Banks in UAE are on par with international standards. Risk
management regulations of the UAE Central Bank focus on establishment of a predominant
practical model of risk management through which commercial banking firms can identify
material risks associated with procedures, policies, processes and systems. In addition to this,
businesses can also use the risk management model for identifying, measuring, monitoring,
controlling and mitigating the material sources of risks affecting the company.
In context of the respective company, Abu Dhabi Commercial Bank the risk management
regulations can be useful in identification of external and internal risks. This provided the
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company benefit of managing risk in a way which is beneficial to the economy and generates
economic growth for the firm. On the other hand, the limitation of these risk management
regulations implemented by the Central Bank is that they are dependent on bureaucracy which
can hamper effective implementation slowing down risk management in commercial Banks.
The risk percentage faced by commercial banks in the UAE Banking industry is
relatively low because the banking industry has recovered from the damaging impact of COVID-
19 on bad debts. The average net income of commercial banks in the banking industry of UAE
has improved by 48.6 percent year on year which is primarily driven by higher operating income along
with lower impairments. Overall, profitability ratios such as return on equity (RoE) and return on assets
(RoA) improved to 11.1 percent and 1.3 percent from 7.7 percent and 0.9 percent, respectively
(Profitability of UAE banking sector recovers amidst cautionary winds as deposits outpace loans
in 2021, 2022). This showcases that despite cautious environment, risk faced by commercial banking
enterprises in UAE is not much and the risk percentage is also not high.
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CHAPTER 3: RESEARCH METHODOLOGY
Research methodology is the process of explaining the way a research is to be carried out. It
is a systematic plan that solve the research problem by identifying the type of data used in an
investigation. It is an approach through which researcher ensure to get valid and reliable result.
The attainment of aims and objective also depends upon the quality of data used in an
investigation (Camic, 2021). In a very simple words it is a process that tell about how the given
piece of investigation will be carried out. Research methodology is divided into various parts that
are as follow:
Research philosophy: It is a set of belied about the phenomenon used to gather and analyse
information. Research philosophy has three branches that are positivism, interpretivism and
realism. Positivism Research Philosophy focuses on explanation and predication. Here the idea
that only fact based evidence derived from observations including quantitative measurement.
Realism research philosophy is other alternative for selecting research philosophy which states
that the reality is independent from the human mind. As per the current investigation,
investigator has chosen interpretivism philosophy. The purpose to choose is that it gathers and
analyse subjective data that helps in understanding the social world in accurate way (Valtakoski,
2020). By using subjective data researcher get to know about the multiple perspective on the
topic. With the use of interpretivism philosophy investigator get close to the truth as in-depth
data is being used. The investigator does not select positivism because it focusses only on
objective data.
Research approach: It is based on the nature that addresses the research problem by testing
hypothesis and theories. There are two types of research approach that are deductive and
inductive. Deductive research approach is associated with scientific research and aims to test a
known theory. It has the advantage of supporting quantitative investigation and the disadvantage
of heavily relying on the accuracy of initial premises. According to the current study,
investigator has opted inductive research approach. It is because qualitative data is being
analysed in effective manner so that new knowledge can be developed effectively (Brennen,
2021). Inductive approach involves the pattern and trends that observe the non-numerical data
and then develop theories that explanation the series of pattern in right way. deductive approach
is not used as it only focuses on testing the developed hypothesis derived from an existing theory
with the help of numerical information.
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Research strategy: Research strategy is a step by step planned procedure that provide
direction to the researcher’s idea and thoughts. There are various kinds of research strategies that
are survey, experimental research, case study, action research, grounded theory and many more.
Action research involves simultaneous process of taking action doing research while
experimental research involves conducting scientific experiment with two or more variables.
Case study is another alternative which involves researching on complex issue in its real life
context. In the current investigation, investigator has opted for systematic literature review
(Cypress, 2019). The reason is that using this second hand information is being attained in
quicker manner. Researcher need to invest less time and cost to obtain qualitative data. Wider
data is being collected that helps in attaining aim and objective in effective way.
Research choice: Research choice is the method of choosing the type of data used in the
investigation. There are three research method that are qualitative method, quantitative research
and mixed research method. Quantitative research method is focused on numerical data,
qualitative method is focused on descriptive data and mixed method involves usage of both
qualitative and quantitative methods. In the present research, investigator has chosen qualitative
research method. It is the research method in which non numerical data is being gathered and
analysed for the investigation (Roberts, Dowell and Nie, 2019). The data is in the form of text
and statement which is narrative the information in wider form. Using this type of data society
can be interpreted in large manner. The reason for not choosing quantitative research method is
that it only gathers numerical information.
Time horizon: It is the time framework that helps in determining the time for gathering data
in a study. It also helps in knowing the completing time as well. There are two-time frameworks
which are as cross sectional and longitudinal. Researchers examine same variables over time
period to detect changes under longitudinal time horizon. In the present investigation,
investigator has chosen cross sectional time horizon (Trent and Cho, 2020). This is because it
helps in completing the overall research in shorter time duration. It also observes different
variables at the same time so that wider data for the research study can be get. The reason for not
choosing longitudinal time framework is that it gathers data for multiple time that aid in
completing the research for longer time duration.
Data collection: Data collection is the procedure for gathering and measuring data for the
study. It is very important to collect information as the overall validity and reliability of the
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investigation depends upon it. There are two data collection source that are primary and
secondary. Primary data is the data which is first-hand information. Whereas, secondary data
means second hand data (Aspers and Corte, 2019). Primary data is collected directly from the
participants without any mediator and used for the very first time in an investigation. On the
other hand, secondary data is the information which is gathered by some mediator and used by
multiple researcher. In the present research, investigator is gathered secondary data. The main
purpose to use is that it collected wider data which past information. Using this large insight on
the topic can be made. Some of the secondary data collection sources are article, website,
journal, business magazine etc. This type of data is also collected in lesser time as well as in low
cost (Gioia, 2019).
Data analysis: Data analysis is the process to inspect, analyse and evaluate collected data.
This is the technique that assist the investigator to measure raw data and obtain beneficiary
information out of it. It is vital to inspect the information because it helps the investigator to
attain aim and objective in valid manner. Some of the data analysis tool are thematic analysis,
frequency distribution analysis, data mining, content analysis and etc. Frequency data analysis
uses descriptive statistics to present and analyse information for the research. In the present
investigation investigator has opted for thematic data analysis source (Blaikie, 2018).
Ethical consideration: It is the collection of various principle and belief that helps in
gathering and completing the investigation in valid manner. There are various values that helps
the investigator to carry the research in ethical manner. in the current research some of the ethics
that are followed to reduce vicious conduct are;
 Confidentiality: In this ethic the researcher has kept the private information of the
participates private so that no harm can be made (Ghirotto, De Panfilis and Di Leo,
2020).
 Credibility: This is another principle in which all the authors are being credited. The
present investigation is completed with the use of credible sources.
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DATA ANALYSIS AND FINDINGS
Thematic Analysis
Theme 1: The concept of credit management and issues of bad debts in context of commercial
bank
From the above literature review, it has been outlined that credit management refers to
the process in which financial institutions that grant credit to the customers, sets payment terms
and conditions for allowing them to make their bill payments on time and recover payments
along with this it ensure customer to comply with their credit policy (Akinleye and Olarewaju,
2019). A continuous and proactive process in used in an effective credit management for finding
out risks, evaluate possible loss and strategically guard against the inherent risks of increasing
credit amount. Through proactive credit management, opportunities are maximised and risk is
minimised within commercial bank as it create balanced act. Effective credit management enable
commercial bank to know about their organisational finances properly in order to avoid
unnecessary credit risk and seize opportunities. Credit management provides several benefits to
the commercial bank. Protection of cash flow is a crucial element for every financial institutions
and it can be done from credit management. It helps in reducing the possibilities in which a large
amount of default credit can adversely affect the business organisation. Through effective credit
management, commercial bank can execute fast and complete debt recovery.
Effective credit management is an effective system that assist commercial bank to
identify the advance credit rating of customers, detect advance late payments and due time
complaints, maintain customer relationship, improves the DSO, frequently scan and monitor
customers for credit risks along with this it prevents from upcoming bad debts. The rise in credit
can also leads in increasing the non-performing loans within the bank (Jha, 2018). The increase
in bad debts creates negative consequences for the banking establishments themselves including
the borrowers linked with the bank. There are some factors that affect the bad debts within
commercial bank which include the loan to deposit ratio, financial performance measurement
through capital adequacy and return on equity. Effective crisis managements in commercial
banks ensure all the customers to pay their invoices on time, within the terms and conditions of
the bank. It is important for the commercial bank because it reinforces the liquidity of their
business. If the credit is properly managed in the bank, it will help in improving the cash flow as
19

well as lower the rate of late payments. Through credit management, banks can assure their
potential lenders who can fund their business expansion plans. It also helps bank to plan and
analyse performance that allows them to prepare financial budgets for the upcoming years (Arora
and Kaur, 2020).
Due to poor credit risk assessment, ineffective loan monitoring, lending products, debt
handling, higher emphasis on lending on the basis of collateral, absence of credit advisory
practices and short loan periods, commercial banks are unable to manage bad debts effectively.
The bad debts at commercial banks are also get affected by the external economic environment
that affects the region. At the time of financial crisis, many challenges are faced by the
household income, consumers and banking institutions that leads higher and debt ratio at
commercial banking institutions (Bach, 2020). On the other side, recovery and stronger growth
of the economy, improves the income, commercial banks, businesses, households and consumers
by lowering the bad debt ratio. Commercial banks are controlled by the government on the basis
on capital ratio and enabled degree of risks which means that the higher capital rate usually
relates with increased degree of risk. Thus, commercial banks focus on increasing the desired
profitability rate by accessing risk sources and increasing leverage which leads to rise in bad
debts ratios. It states that the equity to total assets creates a positive impact on bad debt ratio
within commercial banks. Bankruptcy cost is decreased by the commercial banks while dealing
with the high risk investments through increase in capital ratio. The high risk investments
expenditures and the rise in bankruptcy fees is handled by the improving the capital ratio (Xu,
Zhang and Feng, 2019).
Theme 2: The issue of bad debts and credit management within the commercial bank Abu
Dhabi
From the above mentioned literature review, it has been discussed that the Covid-19
pandemic is one of the major issue that affects the whole world adversely. Commercial banks are
aware about the increase in bad debts and non-performing assets within their product portfolios.
Therefore, it is important for the commercial banks, to face some challenges related to credit
management and bad debts. Bad debts refer to as outstanding balance of loans that are needs to
be written off as well as no longer deemed recoverable (Khemakhem, Said and Boujelbene,
2018). It is considered as a contingency which is accounted for the commercial banks within
UAE. Banking is one of those businesses that focuses on transacting with the customer’s money
20

and generate returns from them. The credit managers refers to that person employed by the
commercial banks for managing and controlling their credit department as well as making
concerned with credit limits, acceptable levels of risk and enforce actions with their customers.
One of the issues related to credit risk management is inefficiencies of data management. To deal
with this issue, the ability is needed to securely store and categorise search based data in order to
avoid potential of outdated information (Kumar, Thrikawala and Acharya, 2022). The
commercial bank of UAE is concerned with efficient amortization and disbursement that
associate with poor evaluation of customers. Improper evaluation of profits is another issue in
the commercial issue which create a situation where funds become the inadequate for the
projects that affects the loans that result to bad debts. In the UAE commercial banks, bad debts
create many difficulties that need immediate solutions for avoiding the damages. When the banks
collect debts slowly, it decreases the bank cash quantity that hampers the expending of their
lending as well as makes any profit.
Credit management refers to the reviewing, settings and analysing discipline the terms in
requests for credit for a business. The sale of goods and services is generally made of credit with
payment to come sometime after delivery (Abid, Masmoudi and Zouari-Ghorbel, 2018). The
debt is uncontrollable account expense that arises when debtors not have money to pay which
leads to liquidation or insolvency of the company. Poor money management or issues with
personal spending are the main causes of bad debts within the commercial banks. There are
many issues that causes bad debt within the commercial bank of Abu Dhabi. The low income or
unemployment as well as low income jobs of people create difficulty for them in order to meet
their bills or put their money into savings. The creditor is unable to collect debts due to some
reasons or it may occurs when individual has poor financial management and they are not
capable to pay debts on time that directly affects profitability and reputation of commercial bank
Abu Dhabi. The political instability of the country directly contributes to bad debts in
commercial bank by the government as they refuses to pay in some projects and it affects the
repayment of the borrowed loan. In the settlement of assets the difficulty faced as getting the
loan approval for which debtor has to pay deposit asset in the bank depends on the loan amount
(He and Liu, 2018). When it becomes bad debt, commercial bank tries to settle those deposit
assets for getting their money back that may cause some problems due to differences between
several legal documents.
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When the bank lends some amount of money to a debtor, the debtor is obliged to return
the full amount including some compensation for borrowing the money. There are always a
danger exists that the debtor will fail in order to fulfil this obligation as well as the lender will
lose some of their money, so they need to be aware of the risk. A commercial bank of Abu Dhabi
writes off their debt when it concluded that they never be going to pay. This does not affect their
obligation to pay back their debt. The banks still try to collect on their unpaid bank debts or turn
them over to a debt debtor. Banks prefer to never have to write off their bad debts because their
loan portfolios are their primary assets as well as sources of future revenue (Belcsak, 2018).
Toxic loans are those loans that cannot be collected or are unreasonable difficult to collect
affects very poorly on a bank’s financial statements as well as can divert their resources from
more productive activity.
Bad debts are not look good in the balance sheet of bank. That is why banks use loan
write off in order to clean up their balance sheets. It is mainly used in the cases of bad loans or
non-performing assets. The loan can be written off, if a loan is not paid as well as it is in default
for more than any three consecutive quarters. If the proportion of non-performing assets grows, it
reduces the banks capacity to sanction further loans, their capacity to repay the depositors as well
as reduces the banks’ ability to ear profit.
Theme 3: The degree of risk management policies and tools adopted by Abu Dhabi
commercial bank to mitigate various type of risk
From the above collected secondary data, it has been outlined that risk management is
considered as the procedure of assessing, identifying and controlling legal, financial and security
risk to organisational earnings and capitals. The commercial banks of Abu Dhabi are the pillars
for economic developments that needed to render importance to risk management in daily
operations. The risk is considered as ambiguity relates with specific future event or
consequences. Within the commercial banking Abu Dhabi, the key focus of risk management is
to control, determine and eliminate those risks that can negatively effect on probability including
relationship stakeholders (Fiorentino and Bartolucci, 2021). The commercial bank of Abu Dhabi
faces many kinds of risk for which there is use of techniques and tools as to mitigate them. There
is a basic business rule which states that increase of the profit leads to increase in risk. Every
commercial bank of Abu Dhabi has the credit risk policies for controlling the bad debt rate and
22

credit risk. This policy involves the risk measurement, risk identification, risk control techniques
and so on (Zagade and Umrikar, 2021).
. The commercial bank can be take letter of credit for mitigating the risk that means customer
will approach the bank to ask an agreement that guarantees the creditor to receive payment by
the due date. The risk return pricing is the fundamental tent related to risk management in which
borrowers with weak financial positions which has been placed in high credit risk category. For
pricing the credit risks the commercial bank need to evolve scientific systems and the loan
pricing need to link with the risk rating or credit quality (Wilhelmsen and Ostrom, 2019).
Risk management techniques and tools are considered those elements that are used to
help to control risk in the company. It helps Commercial bank of Abu Dhabi in identifying
evaluating and reducing risk. It renders the way to create best possible risk management strategy
for dealing with the risk related to credit. The banks can develop a multitier credit for approving
system in which before sanctioning loan, it is reviewed by the officer (Owen, 2020). This assists
in decreasing the chances of any new credit risk within the commercial bank. Among the several
kinds of banking risks, credit risk is considered as the biggest threats and from it bank has to be
prevented. This is close to the bad debts that arises when the debtor not pay back their credit
amount including interest for the bank. For preventing with this risk, the commercial bank needs
to use several solutions as a credit risk management (Linkov and Trump, 2019). Risk transfer is
helpful strategies in mitigating the risk that move to another third party that can be outsources
and move to an insurance agency. It is considered as an best method when it comes to reduce for
future damage. Risk rating is considered as an effective technique for the commercial banks that
helps in mitigating the risks as bank can have comprehensive risk scoring that serve single point
related to diverse risk factors related to counterparty.
23

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