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Nexus between liquidity risk and credit risk: Evidence from the South Asian region

Author

Listed:
  • Khan, Ajab

    (Faculty of Business, Law and Digital Technologies, Southampton Solent University, UK)

  • Yilmaz, Mustafa K.

    (Professor, School of Business, Ibn Haldun University, Turkey)

Abstract

This study investigates the reciprocal relationship between liquidity risk and credit risk and their individual and joint impact on the stability of commercial banks in the South Asian countries, ie Pakistan, Bangladesh and India, from 2004 to 2016. The results reveal that liquidity risk and credit risk have a significantly positive reciprocal and economically meaningful relationship. Each risk type individually and jointly negatively affects banking stability. This impact has been more observable during the global financial crisis. The findings provide valuable insights for bank managers and regulatory authorities. Banks should be more concerned about mitigating their liquidity and credit risks by managing more qualified loan portfolios and investing in less risky liquid assets.

Suggested Citation

  • Khan, Ajab & Yilmaz, Mustafa K., 2022. "Nexus between liquidity risk and credit risk: Evidence from the South Asian region," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 15(4), pages 391-405, October.
    • Handle: RePEc:aza:rmfi00:y:2022:v:15:i:4:p:391-405
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    More about this item

    Keywords

    banking stability; credit risk; liquidity risk; South Asia region;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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