Banking sector is suffering a huge chunk of non-performing loan in Pakistan, Due to this profitability and survivals of banks are at risk in Pakistan. A large number of banks in economies like Thailand, Indonesia, Japan and Mexico experienced a high level of non-performing loan and has faced a significant increase in credit risk during the financial and banking crisis. Due to these financial and economic crises many banks closed down their operations in Indonesia and Thailand (Ahmad & Arif, 2007) . Keeping in consideration to increase in non-performing in Pakistan, study will explore the relationship between Credit Risk and performance of banking sector.By providing reliable data and evidences about the credit risk and its consequences on banks performance in Pakistan, it is clear that how this important factor non- performing loans (NPLs) is influencing the performance of the banks in Pakistan. It also contributes in addressing the problem and finding a research based solution to the problem of non-performing loans in Pakistani banking context. It also contributes efforts toward the financial risk management strategies and techniques.