Nexus between Risk Management and Financial Performance of Conventional Bank in Pakistan
Keywords:
Financial Risk, Bank Performance, Credit Risk, Liquidity Risk, Operational Risk.Abstract
The study investigates the nexus between risk management and performance of Habib Bank Limited using the annual financial time series data from 2005 to 2021. The dependent variable is the bank performance measured by using return on equity. The independent variables are the financial risks, which include credit risk, liquidity risk, and operational risk. The findings suggest that the credit risk and liquidity risk negatively impact the performance of Habib Bank Limited, which means that the increase in credit risk and liquidity risk would result in declining the profitability of Habib Bank Limited. Moreover, operational risk has a significant positive effect on the bank's performance. The study concludes that Habib Bank Limited needs to control its credit and liquidity risks to perform well in the market. It is recommended that Habib Bank Limited adopt strict policies and do a risk analysis of each borrower before issuing the loan. Habib Bank Limited must offer attractive financial products to motivate the depositors to deposit more in the account to control the liquidity risk.
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