Critical Role of Risk Management and Its Impact on Bank Performance in Pakistan

Authors

  • DR. NISBAT ALI
  • HAIDER ALI
  • YASIR KHAN

Keywords:

Risk Management, Commercial Bank, Capital Adequacy, Liquidity, Performance

Abstract

Risk management is most important factor to exist and survive for the financial industry.
The major bankruptcies which incurred of ERON and Lehman-Brothers this arises the
awareness about the appropriate risk management procedure in banking sectors. Our
study analyze the various risk which can affect on banking operation in Pakistan and this
study also include the effect of risk management on the performance of the large banking
sector as well as small banking sectors in Pakistan. This study uses capital adequacy
ratio, non performing loans, interest rate risk, liquidity risk and operational risk for the
risk management. The data is taken from the published annual report of the commercial
banks from 2005 to 2015. Descriptive statistics, correlation matrix and regression
analysis use to analyze the data. This study leads to conclusion is that the better risk
management system leads to the better performance of the banks. It’s also conclude that
capital adequacy ratio, non performing loans, interest rate risk, liquidity risk and
operational risk that are key drivers of the profitability for the large banking sector of
Pakistan. It’s also tell us that only capital adequacy ratio and non performing loans are
the key drivers of small banking sectors in Pakistan.

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Published

2021-12-21

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