Do firm-specific risks affect bank performance?

Abstract

PurposeThe authors examine the impact of credit, liquidity and operational risks on the financial performance of commercial banks of South Asia.Design/methodology/approachData are extracted from DataStream of 76 commercial banks of four countries, i.e. Pakistan, India, Bangladesh and Sri Lanka for the period 2009–2018. The generalized method of moments (GMM) is used to analyze the results.FindingsAll three risks are significantly associated with financial performance. The authors find that Z-score positively affects the bank performance, whereas the nonperforming loans (NPLs) ratio has a negative impact on financial performance of bank. Liquidity risk analyses show the current and loan-to-deposit (LTD) ratios positively and negatively, respectively, affect financial performance. While operational risk positively affects financial performance. The authors further present the significant effects of joint occurrence of credit and liquidity risks on financial performance.Practical implicationsFor managing credit risk, banking management should ensure the policies for granting loans and timely reimbursement of the loan installments from customers. Bank managers should regularly monitor the liquidity position by maintaining the necessary levels of loans and deposits. Management should retain a healthy capital charge to meet operational risks.Originality/valueCredit, liquidity and operational risks are considered the most important categories of risk which are faced by financial institutions. To the best of the authors’ knowledge, this is the first study which investigates the impact of these risks on banks’ financial performance in selected South Asian countries. The results of this study have relevance and probable generalizability about the impact of risks on the performance of banks in emerging markets.

The Effect of Liquidity Risk on Bank Performance: Moderating Effect of Board Size and Board Meeting

“…Empirical evidence conducted by previous researchers shows that liquidity risk has a significant positive and negative effect on banking performance. Therefore, banks need to maintain their liquid assets to maintain their performance (Hunjra et al, 2020). A similar study was also reviewed by (Abdelaziz, Rim and Helmi, 2020), which stated that liquidity risk had a negative impact on bank profitability.…”

“…In the history of banking crises that have occurred so far, bank liquidity crises are one of the main causes of bank defaults for most of their obligations. Lack of liquidity in banks can result in banks not being able to meet depositors' demands when they want to withdraw their deposits (Hunjra et al, 2020). If that condition happens, depositors' confidence in the bank will decrease, which can lead to a worse situation, namely bank rush, which is the simultaneous withdrawal of deposits by depositors.…”

Pengaruh Rasio Likuiditas, Rasio Biaya, Kecukupan Modal, dan Risiko Kredit sebagai Moderasi terhadap Profitabilitas Bank

“…Menurut Rose & Hudgins (2013), "ROA is primarily an indicator of managerial efficiency; it indicates how capable management has been in converting assets into net earnings." Terdapat sejumlah penelitian yang mengukur kinerja profitabilitas bank, seperti Ercegovac et al, 2020;Hunjra et al, 2020;Nisar et al, 2017;Shahid1 et al, 2019;Sofie et al, 2020;Topak & Talu, 2017. Beberapa studi memfokuskan penelitiannya pada satu negara, seperti Turki (Topak & Talu, 2017), Pakistan (Shahid1 et al, 2019), Serbia (Knezevic & Dobromirov, 2016), Kroasia (Kramaric et al, 2017), dan Yordania (Saleh & Abu Afifa, 2020).…”

“…Penelitian terhadap faktor-faktor yang mempengaruhi profitabilitas bank di Indonesia sudah dilakukan, seperti pada bank syariah (Ardana, 2018;Nuha & Mulazid, 2018;Sudarsono, 2017) Kondisi perekonomian yang tidak stabil tercermin oleh rasio NPL sebagai indikator risiko kredit yang mempengaruhi hubungan antara risiko likuiditas terhadap profitabilitas bank. Hasil penelitian sebelumnya menunjukkan bahwa Rasio LDR berpengaruh negatif terhadap profitabilitas (Hunjra et al, 2020;Parenrengi & Hendratni, 2018;Sofie et al, 2020), begitupun dengan rasio NPL (Hunjra et al, 2020), (Nisar et al, 2017). Hal ini berlawanan dengan penelitian Wicaksana & Ramantha (2019) yang menunjukkan bahwa rasio NPL memperlemah pengaruh rasio LDR terhadap profitabilitas bank.…”

“…Selain risiko likuiditas, risiko kredit juga mempengaruhi hubungan antara efisiensi biaya terhadap profitabilitas bank. Rasio BOPO berpengaruh negatif dan signifikan terhadap profitabilitas bank (Sofie et al, 2020;Wicaksana & Ramantha, 2019), begitupun dengan rasio NPL (Hunjra et al, 2020), (Nisar et al, 2017). Sedangkan berdasarkan hasil penelitian Wicaksana & Ramantha (2019), rasio NPL memperkuat pengaruh rasio BOPO terhadap profitabilitas bank.…”