The Effect of Liquidity Risk Management on Financial Performance of Commercial Banks in Pakistan

Alim, Wajid and Ali, Amjad and Metla, Mahwish Rauf (2021): The Effect of Liquidity Risk Management on Financial Performance of Commercial Banks in Pakistan.

Abstract

The study tests the effect of liquidity risk management on the financial performance of commercial banks in Pakistan. Pakistani financial market is heavily dependent on its banking sector to achieve its financial goals and stability. Therefore, the banking sector’s performance has a significant effect on the overall economy of the country. To achieve its need for stability, the central bank of Pakistan ensures that banks maintain an optimum liquidity position to reap the most benefits and increase returns. In this study, the effect of liquidity risk management on financial performance is studied using panel data for Ordinary Least Square analysis. Financial data of all commercial banks operating in Pakistan during the period of study was taken from the year 2006 to 2019 using data archives of the State Bank of Pakistan website. It is concluded that higher liquidity increases banks’ performance in commercial banks of Pakistan. The results are in line with several studies and available literature. This study can become a good reference for future policy decisions regarding the minimum liquidity requirements of banks in this region. This study can be further enhanced using a longer period of study and include more variables specific to the banking sector in Pakistan, like bank size, age of bank, etc. Further studies may include other non-commercial banks to further strengthen the study and increase its reliability.

• Item Type: MPRA Paper
• Language: English
• Keywords: Liquidity Risk; Performance; Banking Sector; ROA; ROE; Pakistan
• 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 > G33 - Bankruptcy ; Liquidation

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