Asset Quality and the Financial Performance of Commercial Banks in South Sudan

Abstract

Banks are of great and noteworthy importance in preserving and promoting the advancement of diverse economic sectors, making them crucial components of the economy. They shift the resources' attention from areas with surpluses to those with deficits. However, majority of nations have encountered banking issues that have necessitated significant banking system reforms. The issues are primarily the result of domestic factors including poor banking supervision, ineffective management, and insufficient capital. Making sure companies participating in the sector are managed prudently is a crucial aspect of bank regulation. The primary aim of this study was to determine the effect of asset quality and the financial performance of commercial banks in South Sudan. An explanatory research design was used in the study. The target populace was commercial banks in South Sudan. There were 29 commercial banks that existed in South Sudan between 2017 and 2021. The study used purposive sampling to sample 23 banks that were in operation between 2017 and 2021. Secondary information was used in the study. For analysis, the obtained information was cleaned and imported into STATA 17. Descriptive statistics and regression analysis was conducted. The inferential statistics used were correlation and regression. Descriptive outcomes showed that the mean asset quality ratio from 2017 to 2021 for the commercial banks in South Sudan was 0.262, with the least asset quality ratio being 0.622 and the most being 4.395. Trend outcomes were clear that asset quality was inconsistent amongst South Sudan commercial banks. Outcomes were clear that asset quality negatively but significantly impacted by the performance. The study concluded that asset quality had a negative and noteworthy impression on financial success. As a result, the report advises banks to refrain from holding too many loans relative to their overall assets, as this reduces liquidity and negatively impacts the bank's ability to operate. The study suggests that banks implement appropriate credit risk management procedures. This is because inadequate credit risk management procedures lead to a large percentage of nonperforming loans, which eventually have a negative impact on commercial banks' profitability.