This study examines the effect of credit risk management (CRM) on the financial performance of Saudi Arabian banks and investigates whether this relationship differs between Islamic and conventional banking models. Using panel data from 40 banks covering 2020–2024, the study incorporates key credit-risk indicators including NPLA/PLAL, PLAL/TLA, NPLA/TLA, TLA/TAS, and LDR and applies multiple regression and group-comparison tests. The results reveal that CRM significantly influences profitability, with higher non-performing loan ratios reducing ROE, while stronger lending intensity (LDR) and higher loan concentration (TLA/TAS) enhance performance. Comparative tests indicate substantial differences in credit-risk profiles across bank types but no significant difference in financial performance levels. However, interaction-term analysis demonstrates that the impact of credit-risk indicators on ROE varies meaningfully between Islamic and commercial banks. Overall, the findings underscore CRM’s essential role in sustaining profitability and highlight the moderating effect of banking model structures within Saudi Arabia’s Basel-aligned regulatory environment.