Abstract
Financial stability and long-term viability of banks become vulnerable by financial risks. All banks face financial risks with the
modern progress and development of the global financial market. Therefore, it becomes necessary to judge that these risks had any
consequence on bank’s financial performance in order to put into practice good risk management. In Pakistan there are few studies
that have been conducted on the financial risks that affect the bank profitability. The purpose of this research is too drawn attention
on the impact of financial risks on banking financial performance of conventional banks in Pakistan. “Return on Assets (ROA)
Return on Equity (ROE)” has been utilized as the proxies to measure the financial performance of banks, Financial risk proxies used
as independent variables which includes credit risk, interest rate risk, liquidity risk, and controlled variables includes interaction of
Credit Risk & Interest Rate Risk, GDP, inflation, bank size and bank capitalization. The results of several studies showed mixed
results. Henceforward, the relationship between them is not conclusive. This research relies purely on secondary data. The duration
of the study was 2014 to 2018 and sample size consists of 22 banks. We applied panel data regression analysis of Generalized Least
Square (GLS) with fixed effect and random effect model. The findings of the study showed that Credit risk has significantly negative
relationship with ROE and ROA. The relationship among Interest rate risk and performance is significant positive but liquidity risk’s
impact on both performance measures is insignificant. The regression outcomes for controlled variables shows that lagged ROA and
Lagged ROE significantly affected the both performance measures. The impact of interaction of Credit risk and Interest rate risk on
ROA and ROE is negative significant. Bank size have positive relationship with ROA and ROE. Bank Capital has insignificant
impact on both ROA and ROE. Whereas, GDP impact on ROA and ROE has insignificant relationship. This study will be useful for
policy makers and for regulators to avoid systematic risk indirectly by making updated decisions and by making polices that will
provide bottom line of the bank. Henceforth, bank supervisors along with banks should build the tradeoff among financial
performance and financial risk.
Snober Javid, Madiha Rehman Farooqi, Abid Rasheed. (2019) Assessment of Financial Risks on Financial performance of Conventional Banks: An Empirical Evidence from Pakistan, Paradigms , Vol 13, Special Issue.
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