Upon going through the process of a sound lending procedure, almost all banks are offering loans to its prospective bank borrowers because of the high interest rates that will be added to the principal loan.
For individuals or business with good credit standing, banks are more than eager to extend loan in exchange of the agreed interest rate. However, external factors such as natural catastrophe, negative economic condition, a global financial crisis, and poor business performance could make the bank borrower fail to meet their financial obligations with the banks (Frenkel et al. 2005, p. 502). This makes bank loans aside from other banking practices such as interbank transactions, foreign exchange transactions, financial futures, bonds, equities, interbank transactions, and acceptances
Credit risk strongly influences the overall bank performance and bank failure (Boffey and Robson 1995). Although credit risk is considered as one of the most common types of risk most UAE commercial banks are facing, the research findings of Hussein, Al-Tamimi and Al-Mazrooei (2007) revealed that risk related to foreign exchange is the most common in UAE commercial banks followed by credit risk and operating risk.
Among the common causes of credit risk include not only the lax credit standards that has been extended to the bank borrowers but also some cases of poor portfolio risk management due to failure to predict and respond early to economic changes (Dufey and Rehm 2002). Based on historical facts, most of the global financial institutions such as banks had been facing serious banking problems during a global financial crisis. To counteract the long-term negative consequences of large amount of unpaid loans, bankers should properly manage the situation through credit risk management.
Critical Success Factor (CSF) is referring to elements that can make the local banks in UAE achieve its organizational goal and