Analysis of Liquidity, Credit and Operational Risk on Financial Performance of Banks in Bhutan (BOBL, BNBL, & DPNBL)

This research has been conducted to provide insight on how liquidity risk, credit risk, and operation risk affect the bank’s financial performance in three different banks (BOBL, BNBL, and DPNBL) in Bhutan measured by Return on Asset and Return Equity. This study is based on an exploratory and quantitative approach seeking to explain the impacts of risk components on banks’ performance. For this, liquidity risk, credit risk, and operation risk were employed as the independent variables whereas ROA and ROE were used as the dependent variable. The liquidity risk is measured by quick ratio and cash ratio, while credit risk is measured by non-performing loan and capital adequacy ratio, and the operational risk is measured by efficiency ratio and cost to income. Secondary datasets were extracted from the audit annual reports of the selected banks for 10 years (2013- 2022). The finding of the study reveals that the operational risk and credit risk has a statistically significant impact on the ROA however, the liquid risk has no significant impact on ROA. In case of ROE, the operational risk has a statistically significant impact but the liquidity risk and credit risk do not have a statistically significant impact.