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

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Listed:
  • Neopaney, Devindra
  • Ghalley, Doot Kumar
  • Choden, Karma
  • Wangmo, Dechen
  • Rasaily, Ganesh

Abstract

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.

Suggested Citation

  • Neopaney, Devindra & Ghalley, Doot Kumar & Choden, Karma & Wangmo, Dechen & Rasaily, Ganesh, 2024. "Analysis of Liquidity, Credit and Operational Risk on Financial Performance of Banks in Bhutan (BOBL, BNBL, & DPNBL)," Bhutan Journal of Business and Management, Gedu College of Business Studies, Royal University of Bhutan.
    • Handle: RePEc:eoq:bjbmjr:art35
    DOI: 10.17102/bjbm.v7.2
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    References listed on IDEAS

    as
    1. Sunil Kumar & Vipin Kumar Meena, 2022. "Credit Risk and financial performance banks: a panel data analysis," International Journal of Accounting, Business and Finance, Indian Accounting Association, Patna Branch, vol. 1(2), pages 36-47.
    2. Muhammad Shaukat Malik & Mustabsar Awais & Aisha Khursheed, 2016. "Impact of Liquidity on Profitability: A Comprehensive Case of Pakistan¡¯s Private Banking Sector," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(3), pages 69-74, March.
    3. Isam Saleh & Malik Abu Afifa & Louis Murray, 2020. "The effect of credit risk, liquidity risk and bank capital on bank profitability: Evidence from an emerging market," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1814509-181, January.
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