LIQUIDITY RISK AND ITS IMPACT ON FINANCIAL PERFORMANCE OF FINANCIAL INSTITUTIONS IN PAKISTAN
Abstract
The recent financial crisis has highlighted the significance of sound liquidity management. Liquidity risk is one of the key issue for financial institutions. An organization with a strong asset base, adequate capital and earning may fail if not sustained good liquidity positions. This study attempts to empirically examine the impact of liquidity risk on the performance of selected banks operating in Pakistan. The panel data over a period of 2006-2015 was collected from the yearly published financial statements of banks working in Pakistan. The data was examined through the panel data regression model. Bank size, nonperforming loan ratio and capital adequacy ratio were used as surrogate variable for liquidity risk. The profitability of the selected banks was measured by taking the ratio of return on assets. The results of the regression model show a major impact of liquidity risk on the performance of Banking Institutions. The influence of the capital adequacy ratio and bank size was found significant and positive, while the influence of the nonperforming loan ratio proved insignificant. This study helps to understand the important parameters of liquidity risk and their influence on bank profitability. This study is valuable for risk managers to alleviate liquidity risk by having satisfactory liquid assets. This minimizes the liquidity gap and dependency of the financial institutions on the repo market.Downloads
Published
Issue
Section
License
Submission of an original manuscript to the Journal will be taken to mean that it represents original work not previously published, that it is not being considered elsewhere for publication. And if accepted for publication, it will be published in print and online and it will not be published elsewhere.
The journal main policy reflects in its stance that the publication of scholarly research is exclusively meant to disseminate knowledge and not-for-purposes.
Copyright Statment
Sarhad Journal of Management Sciences is published by Sarhad University of Science and Information Technology Peshawar. This copyright statement entails that all contents (including text, tables, graphs, images, or any materials that is part and parcel of a research article submitted to the journal) belong to/ property of the person who owned it prior to submission this journal. Publication of the submitted article will not affect the ownership of copyright of the subject materials. SJMS and its users benefit from a general licence over all content submitted under a Creative Commons CC-BY licence over all content. However, content which is not part of the submitted article, is the property of SJMS. In a nutshell, the combination of all content on the SJMS website, the look and feel of the website, is the property of Sarhad University of Science and Information Technology Peshawar.
As an author or contributor, you grant permission to others to reproduce your articles, including any graphics and third-party materials supplied by you, in accordance with the SJMS Terms and Conditions. The licence granted to third parties over all contents of each article, including third-party elements, is a Creative Commons Attribution ("CC BY") licence. The current version is CC-BY, version 4.0 (http://creativecommons.org/licenses/by/4.0/), and the licence will automatically be updated as and when updated by the Creative Commons organisation.
You may include a requirement to reproduce copyright notices but you may not restrict the right to reproduce the entire article, including third-party graphics. This means that you must obtain any necessary third-party consents and permissions to reproduce third-party materials in your articles submitted to SJMS.
Copyright Statement updated September 13, 2022.
