Liquidity Risk Management in the Perspective of Asset Quality, Loan Quality & Governance: A Case Study of Pakistan Banking Industry

Rauf, Saima and Audi, Marc and Ali, Amjad (2026): Liquidity Risk Management in the Perspective of Asset Quality, Loan Quality & Governance: A Case Study of Pakistan Banking Industry.

Abstract

The research investigates how banks manage liquidity risk through their loan quality assessment and asset quality evaluation, which they regulate using board member characteristics. The research employed panel data from 2011 to 2023 to examine variable relationships through fixed effects and random effects regression models. The results show that nonperforming loans create adverse effects on banks' liquidity risk management abilities because their loan quality decreases, which harms their liquidity management capabilities. The relationship between asset quality and liquidity risk management shows a positive correlation because banking institutions with better asset structures achieve superior financial stability and more effective liquidity management systems. The research outcomes show that board governance characteristics interact with financial risk indicators to create effects that determine the results of liquidity risk management. The study demonstrates that governance mechanisms function as vital elements that determine banks' credit risk management strategies and their approaches to handling liquidity challenges. Board members who exercise proper oversight will enhance monitoring systems, which will promote responsible financial choices that protect institutional resilience. The research findings demonstrate that banks must develop stronger governance structures while they need to implement effective credit risk management methods. The financial system will achieve greater stability through better board supervision, which will lead to improved loan portfolio monitoring and safer lending practices. Banking institutions need these measures to build their resilience, along with maintaining their operational capacity during economic downturns.

• Item Type: MPRA Paper
• Language: English
• Keywords: Liquidity Risk Management, Loan Quality, Asset Quality, Governance
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting

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