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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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