Abstract
Banking industry occupies strategically key position in an economy as they are the key enabler for rest of the industries. Efficient banking industry can create conducive economic environment in which other manufacturing and service sector thrive. Commercial banks are like any other commercial venture in terms that it aims to earn profit but they are unique as they deal in money. Bank as a business entity operating in the vibrant globalized economy faces many challenges. These challenges can be termed as risks as they have fair amount of knowledge about them. In fact, economy health can be assessed by understanding financial performance of the banks (Haque, Sharma, 2011). Bank’s financial performance can be assessed by return on asset (ROA) and return on equity (ROE). As per Bank for International settlement banking activities are related to customers and investment of equity. This gives rise to financial risk. There is inverse relationship between risk and return. Banks must balance its exposure to financial risk and the returns earned. Efficient financial risk management should have favourable impact on the profitability of the bank. In this paper a case of Axis bank is considered to understand the association between the financial risk management and the returns earned by the bank. It is found that efficient risk management has impact on the performance of the bank.
Highlights
Commercial banks are in the business organization who deal in money
Adjusted R square was (96%) which indicate the financial performance of Axis bank due to change in credit risk, interest rate risk, foreign exchange risk, liquidity risk, capital management risk, bank deposits and bank size
Based on ANOVA analysis we find that regression model for return on asset (ROA) is significant at 5%
Summary
Commercial banks are in the business organization who deal in money. It is imperative that banks who deal in other’s money, need to practice prudent risk management practices as they have obligation to return deposit at appropriate time and they have obligation to create value for its shareholders. Case of Axis bank is considered to understand financial risk management and its impact on the profitability of the company. Financial risk management is the quality control of finance. It is a broad term used in different senses for different businesses or things but basically it involves identification, analyzing, and taking measures to reduce or eliminate the exposures to loss by an organization or individual (Muteti, 2014). Financial risk has five components, namely credit risk, interest rate risk, foreign exchange risk, capital management risk and liquidity risk
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