IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/112482.html
   My bibliography  Save this paper

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

Author

Listed:
  • Alim, Wajid
  • Ali, Amjad
  • Metla, Mahwish Rauf

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.

Suggested Citation

  • Alim, Wajid & Ali, Amjad & Metla, Mahwish Rauf, 2021. "The Effect of Liquidity Risk Management on Financial Performance of Commercial Banks in Pakistan," MPRA Paper 112482, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:112482
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/112482/1/MPRA_paper_112482.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Philippe Jorion, 2009. "Risk Management Lessons from the Credit Crisis," European Financial Management, European Financial Management Association, vol. 15(5), pages 923-933, November.
    2. ŞENTÜRK, İsmail & Ali, Amjad, 2019. "Socioeconomic Determinants of Gender Specific Life Expectancy in Turkey: A Time Series Analysis," MPRA Paper 97815, University Library of Munich, Germany.
    3. Amjad Ali & Ismail Senturk, 2019. "Justifying the Impact of Economic Deprivation, Maternal Status and Health infrastructure on Under-Five Child Mortality in Pakistan: An Empirical Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 8(3), pages 140-154, September.
    4. Bikker, J.A. & Metzemakers, P.A.J., 2005. "Bank provisioning behaviour and procyclicality," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(2), pages 141-157, April.
    5. Igan, Deniz & Kabundi, Alain & De Simone, Francisco Nadal & Tamirisa, Natalia, 2017. "Monetary policy and balance sheets," Journal of Policy Modeling, Elsevier, vol. 39(1), pages 169-184.
    6. Alper, Deger & Anbar, Adem, 2011. "Bank Specific and Macroeconomic Determinants of Commercial Bank Profitability: Empirical Evidence from Turkey," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 2(2), pages 139-139, April.
    7. Asif Sajid & Amjad Ali, 2018. "Inclusive Growth and Macroeconomic Situations in South Asia: An Empirical Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 7(3), pages 97-109, September.
    8. Claeys, Sophie & Vander Vennet, Rudi, 2008. "Determinants of bank interest margins in Central and Eastern Europe: A comparison with the West," Economic Systems, Elsevier, vol. 32(2), pages 197-216, June.
    9. Anthony M. Santomero, 1997. "Commercial Bank Risk Management: An Analysis of the Process," Center for Financial Institutions Working Papers 95-11, Wharton School Center for Financial Institutions, University of Pennsylvania.
    10. Ayesha Haider & Amjad Ali, 2015. "Socio-Economic Determinants of Crimes: A Cross-Sectional Study of Punjab Districts," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(11), pages 550-560, November.
    11. Abdelaziz Hakimi & Khemais Zaghdoudi, 2017. "Liquidity Risk and Bank Performance: An Empirical Test for Tunisian Banks," Business and Economic Research, Macrothink Institute, vol. 7(1), pages 46-57, June.
    12. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
    13. Anthony Santomero, 1997. "Commercial Bank Risk Management: An Analysis of the Process," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(2), pages 83-115, October.
    14. Yannick Roussel & Amjad Ali & Marc Audi, 2021. "Measuring The Money Demand In Pakistan: A Time Series Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(1), pages 27-41, March.
    15. Vincent Okoth Ongore & Gemechu Berhanu Kusa, 2013. "Determinants of Financial Performance of Commercial Banks in Kenya," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 237-252.
    16. Bourke, Philip, 1989. "Concentration and other determinants of bank profitability in Europe, North America and Australia," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 65-79, March.
    17. Mohamad Kassem & Amjad Ali & Marc Audi, 2019. "Unemployment Rate, Population Density and Crime Rate in Punjab (Pakistan): An Empirical Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 8(2), pages 92-104, June.
    18. Fiordelisi, Franco & Mare, Davide Salvatore, 2014. "Competition and financial stability in European cooperative banks," Journal of International Money and Finance, Elsevier, vol. 45(C), pages 1-16.
    19. Athanasoglou, Panayiotis & Delis, Manthos & Staikouras, Christos, 2006. "Determinants Of Bank Profitability In The South Eastern European Region," MPRA Paper 10274, University Library of Munich, Germany.
    20. Shahid Yusuf, 2003. "Innovative East Asia : The Future of Growth," World Bank Publications - Books, The World Bank Group, number 15158, December.
    21. Michael Adusei, 2015. "The impact of bank size and funding risk on bank stability," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1111489-111, December.
    22. Étienne Bordeleau & Christopher Graham, 2010. "The Impact of Liquidity on Bank Profitability," Staff Working Papers 10-38, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sohail Aslam & Maqsood Ahmad & Naveed Anwer & Farooq Ahmad, 2022. "Effect Of Corporate Social Responsibility On Firm Financial Performance Through Organization Identification: The Contextual Effect Of Authentic Leadership," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(1), pages 142-152, March.
    2. Warda Najeeb Jamal & Rana M. Zahid Hafeez & Owais Shafique & Razi Razzaq & Gulfam Asif & Muhammad Waqas Ashraf, 2021. "Impact Of Microcredit Finance On The Socioeconomic Status Of The Underprivileged Populace Of Punjab: Through The Mediating Effect Of Knowledge Sharing Ability And Financial And Legal Awareness," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(4), pages 113-125, December.
    3. Ahsan Javaid & Nosheen Nawaz, 2021. "Impact Of Customer Relationship Management On Firm Performance: Empirical Investigation Of Insurance Providers In Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(4), pages 64-75, December.
    4. Aasir Ali & Nain Tara & Nosheen Nawaz & Nadim Rafi, 2021. "Exploring The Role Of Mobile Marketing As A Blessing Or Curse: A Case Study Of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(4), pages 56-63, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Muhammad Hatim & Zerish Tasleem & Muhammad Nadeem, 2022. "The Influence Of Education And Health On Rural Household Poverty: A Moderating Role Of Culture In Punjab, Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 120-133, June.
    2. Abdul Hai Rathore & Abdullah Sahi, 2022. "The impact of Corporate Governance on voluntary disclosure of R&D expenditure of USA Pharmaceutical firms," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 8(2), pages 34-53, August.
    3. Qasim Abbasi & Bilal Khokar, 2021. "Nexus between Gender Inequality and Income Inequality," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 7(4), pages 41-49, December.
    4. Shazia Sana & Shahnawaz Malik & Muhammad Ramzan Sheikh, 2022. "Investigating The Effectiveness Of Channels Of Monetary Transmission Mechanism In Pakistan: An Application Of Var Model, Impulse Response Function And Variance Decomposition," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 160-184, June.
    5. Shahzad Hassan & Norazah Mohd Suki & Maria Akhtar & Khan Zaman Khan & Naveed Hassan, 2022. "What Is The Role Of Humble Leadership In Shaping Customer Citizenship Behavior And Employee Innovative Work Behavior? Evidence From Service Sector," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 235-243, June.
    6. Ahmad Latif & Rimsha Javed, 2021. "Does Economic Growth, Population Growth And Energy Use Impact Carbondioxide Emissions In Pakistan? An Ardl Approach," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(2), pages 85-91, June.
    7. Alim, Wajid & Ali, Amjad & Minhas, Amna Shafiq, 2022. "The Impact of Leverage on the Firm Performance: A Case of Fertilizers Sector of Pakistan," MPRA Paper 114200, University Library of Munich, Germany.
    8. Marc Audi & Razan Al-Masri & Chan Bibi, 2022. "Challenging Assumptions about Women’s Empowerment and Economic Resources and Domestic Violence among Young Married Women in India," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 8(2), pages 23-33, August.
    9. Aqsa Mehmood & Hafiz Muhammad Abubakar Siddique & Amjad Ali, 2022. "Impact Of Health On Worker Productivity: Evidence From South Asia," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 1-8, June.
    10. Ghulam Qambar & Shahid Mehmood & Nosheen Kanwal, 2021. "Promotion Oriented Research Culture: Understanding Scholars’ Deficiencies In Research Proficiency," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(3), pages 135-143, September.
    11. Zia-Ur-Rehman & Muhammad Razzaq Athar & M. Mohsin Shahid & Malik Muhammad Faisal & Mareum Shehzadi, 2022. "Exploring The Serial Mediation Of Mobile App Engagement And Self Brand Connection In The Relationship Between Brand Experience And Loyalty Towards Brand," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 20-30, June.
    12. Zerish Tasleem & Muhammad Hatim & Mahnoor Malik & Muhammad Nadeem & Muhammad Tariq Ramzan, 2022. "The Impact Of Health Facilities On Rural Poverty In Southern Punjab, Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 104-109, June.
    13. Arzoo Mushtaq & Shahnawaz Malik & Muhammad Hanif Akhtar, 2022. "Nonlinear Taylor Rule And Inflation-Targeting In Pakistan: A Time Series Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 185-197, June.
    14. Fiaz Ahmad Sulehri & Usman Ahmed & Wajid Alim, 2021. "Black Economy, Financial Inclusion, Financial Liberalization Nexus: A Panel Analysis Of Developing Countries," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(3), pages 65-77, September.
    15. Tariq Hussain & Ahmad Raza Ul Mustafa & Makhdum M.I. & Kaleem Ullah, 2022. "Defense Expenditures, Fiscal Deficit And Debt Servicing Nexus: A Case Study Of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 74-83, June.
    16. Marc Audi & Fiaz Ahmad Sulehri & Amjad Ali & Razan Al-Masri, 2022. "An Event Based Analysis of Stock Return and Political Uncertainty in Pakistan: Revisited," International Journal of Economics and Financial Issues, Econjournals, vol. 12(5), pages 39-56, September.
    17. Bilal Akram & Ali Raza, 2021. "Human Well-being and Macroeconomic Environment in South Asia," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 7(4), pages 11-17, December.
    18. Munir Ahmad & Muhammad Javed Iqbal Khan & Zahra Shahid, 2022. "Strategies And Methods Of De-Radicalization In Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 110-119, June.
    19. Bismillah & Shahnawaz Malik & Muhammad Ramzan Sheikh, 2022. "Trade Liberalization And Fiscal Stance In Selected Developing Countries: A Granger Causality Approach In Var Framework," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 134-159, June.
    20. Afeefa Ahmad & Dilshad Ahmad, 2022. "Effects Of Women Empowerment On Access To Healthcare In Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 84-92, June.

    More about this item

    Keywords

    Liquidity Risk; Performance; Banking Sector; ROA; ROE; Pakistan;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:112482. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.