The Mediating Mechanism of Bank Efficiency in the Nexus between Liquidity, Credit Risks, and Bank Performance: a Comparative Study

The research focused on the effect of credit risk management on the performance of commercial banks in Rwanda. A case of Cogebank Rwanda PLC. The study specifically analysed the effects of credit appraisal, credit risks identification, credit risks monitoring and control and credit collection on the performance of Cogebank, Rwanda PLC. The study covered the period of four years from 2018 up to 2021. In term of research methodology, the study adopted a cross section research design and used questionnaire, interview and documentation as main tools of data collection. The study adopted censes approach and considered all 35 staff from two departments accounting and credit departments which were purposively selected. Researcher also analyzed the collected data using Statistical Product and Service Solutions (SPSS). The results showed that the bank granted loans of 95.8%; 97.3%; 92.4% and 85.0% respectively of their deposits from 2018 to 2021. And looking at BNR’s regulations on the loan granting it is clear that the commercial bank must not exceed 80% of deposit collected when granting loans. From 2018 up to 2021 the ratio of Return on Equity was as following: 12.62%; 13.63%; 12.24% and 13.79% respectively. The results show the value of adjusted R2 is 0.650 implying that there was a variation of 65% of performance of Cogebank Rwanda PLC which was explained by the four credit risk management strategies adopted by the bank namely credit risk appraisal, credit risk identification, credit risk analysis, and credit risk monitoring. This implies that, credit risk appraisal, credit risk identification, credit risk analysis, and credit risk monitoring explained 65% of performance at a confidence level of 95%. This study recommends that Cogebank Rwanda Plc should improve loan recovery procedures for better loan management, should improve the implementation of guarantee policies for better loan management and since the latter has significant effect on performance of the bank. Keywords: Credit Risk Management, Commercial Banks Performance, Cogebank Rwanda Plc. Rwandan Banking Sector, Financial Stability

This study aims to investigate the impact of liquidity, credit, and financial leverage risks on the financial performance of Islam banks in Sudan during the period of 2008 - 2018. Panel dataset of 143 observations from (13) banks has been used in this study. Two models of ROA and NPM have been constructed using robust random effects estimates for testing the study hypotheses. The independent variables consist of liquidity and credit risks plus the financial Leverage ratio. Credit risk that measured by nonperformance of loan (financing) and provision of loan (financing) loss ratios; while the liquidity risk measured by cash to deposits ratio, liquid assets to total assets ratio and total loan (financing) to total deposits ratio. The financial performance of Islamic banks in Sudan measured by the ratios of return on assets and net profit margin. The results reveal that the credit risk and financial leverage have significant and negative impact on the financial performance of Islamic banks in Sudan, whereas the liquidity risk generally found to be insignificant. Despite that, the liquidity risk in term of liquid assets to total assets ratio provides a significant and positive influence on the financial performance of Sudanese banks. Finally, the importance of this study is that it touches the most significant types of risks that Sudanese Islamic banks face during their operational cycles.

At its core, commercial banking is a business deeply entrenched in the dynamics of risk and reward. Financial risks, encompassing credit, liquidity, price and operational risks, serve as inherent components of banking activities. These risks are not only omnipresent but also inherently interconnected, creating a complex web that directly influences financial performance of commercial banks. The purpose of the study was to determine the effect of financial risk on financial performance of listed commercial banks in Kenya. The study was grounded on extreme value theory, credit risk theory, asymmetry information theory and liquidity preference theory. Correlational research design was adopted in the study as it helps researcher explore and explain the effects of financial risks on the financial performance of commercial banks. Nairobi Securities Exchange (2023) indicates that there are 10 commercial banks listed in NSE as of 31st December 2023. The target population consisted of all 10 listed commercial banks in Kenya which formed the unit of analysis. Time Series secondary panel data was utilized. The data was obtained from published financial statements of 10 listed commercial banks, and CBK bank supervision reports from 2019 to 2023.The coefficient of determination (R2) was used to determine how much variation in dependent variable is explained by explanatory variables. Statistical Package for Social Science was used as data analysis tool. Results showed that credit risk, price risk and operating risk had negatively and significant effect on the financial performance of commercial banks in Kenya. However, liquidity risk had negative and insignificant effect on financial performance of listed commercial banks in Kenya. Also, majority of listed commercial banks had adequate liquidity to cover loans in the event of an economic downturn resulting in loan defaults. It was concluded that credit risk had a negative and statistically significant relationship with financial performance of commercial banks listed in NSE. This implies that when non-performing loans are increasing, performance is likely to be going down. It was also concluded that liquidity risk had a negative and insignificant effect on financial performance of commercial banks listed in NSE. . The study recommended that the managers of the bank to adopt the policies that will ensure debtors ratios does not increase at high ratios in relation to the total capital since this amounts to credit risk. The managers should minimize the credit risk by ensuring the credit worthiness of the clients is critically evaluated with collateral

This study examines the impact of IFRS 9 adoption, liquidity risk, credit risk, and capital adequacy on banking performance, as measured by Return on Assets (ROA), Tobin's Q (TQ), and Earnings Per Share (EPS), using a panel data regression model with 187 observations from 2014 to 2024. The data is collected from the Iraqi Stock Exchange. The findings show that liquidity risk (LCR, LDR) has a significant impact on profitability and earnings, emphasizing the need for liquidity management in ensuring banking stability. Capital adequacy (CAR, Tier 1 Capital) is critical for market value, however, IFRS 9 adoption has a significant impact on earnings but has little effect on profitability or valuation, indicating that regulatory compliance is primarily concerned with financial reporting. Significantly, credit risk indicators (LLP, NPL) had no significant influence on any performance metric, suggesting that short-term banking performance is more dependent on liquidity and capital sufficiency than credit risk. The study also found that firm-specific factors, particularly Firm Size (FS) and Firm Growth (FG), significantly increase banking performance across all models, implying that larger, growing banks outperform their smaller counterparts. The Hausman test findings endorse the Fixed Effects model for TQ, the Random Effects model for EPS, and the Pooled OLS model for ROA, therefore assuring model robustness. These results underscore the need for banks to maximize liquidity buffers, capital reserves, and risk management frameworks to bolster financial stability and promote long-term development. Policymakers must maintain a balanced regulatory framework that promotes openness and guarantees financial resilience. Subsequent study may investigate macroeconomic factors and the enduring impacts of credit risk on banking performance.

Bank performance is important in the stability of a country. If a bank's financial performance is poor, it will have an impact on channeling funds to who need funds and will hinder the economy of a country. Therefore, this research was conducted to examine the factors that influence bank performance. This research has developed novelty that is of from research before with the use of an intermediary variable is Liquidity. This research uses secondary data in the form quarter time series from 2013 to 2019. The population and samples in this study are 41 conventional banks. The sampling technique used is exhaustive sampling method. The data analysis technique used is Path Analysis and Sobel Test to measure Intervening variables. The results of research on substructure I that partially Credit Risk and Efficiency have a negative and significant effect on Bank Performance, while the level of Liquidity has no effect on Bank Performance. In substructure II, Credit Risk and Efficiency do not affect the Liquidity Level. For the path analyze results in this research using the single test, it is found that the liquidity level does not interfere in the effect of credit and efficiency on bank performance.

Banks exist to make a profit so that they can continue to operate, grow, and expand. Bank stability has been challenged over the previous two decades as a result of political intervention, nonperforming loans (NPLs), and interest rate changes. They need to monitor these micro and macro-level factors to identify and manage risk. Thus, the current study explores the impact of credit risk (NPL, Z-Score) and liquidity risk (LR) on the performance of South Asian banks measured with ROA and ROE. The sample of the study comprised a total of 35 listed banks of South Asian Countries (Pakistan (20) and India (15)) and the sample period spans 10 years from 2011 to 2020. The information was obtained from data stream and the financial statements of selected banks listed on the Pakistan Stock Exchange (PSX) and Bombay Stock Exchange (BSE). The findings show that credit and liquidity risk has a major impact on the performance of South Asian banks. Overall, credit risk has a negative impact on bank performance. However, the Z-score value in the estimation derived with ROE, on the other hand, demonstrates a positive connection with bank performance. The current study’s findings suggest that bank management in developing countries should provide timely monitoring and supervision of their long-term borrowers to control credit risk.

The management of deposit money banks' risk portfolio investments in an effective manner in order to maximize the wealth of their shareholders by guaranteeing safety, returns on depositors' funds, and confidence in the system is the primary function of deposit money banks in the modern era. The study took an empirical approach to examining the effects that financial risks have on the overall performance of deposit money banks in Nigeria. To be more specific, shifts in financial performance were analyzed from the perspective of the relative effects of credit risk, liquidity risk, market risk, operational risk, and bank size. Both statistical and econometric methods were utilized in the analysis of the data that was utilized in the study. The study specifically focused on 18 deposit money banks that were listed on the floor of the Nigerian Stock Market for a period of 19 years. During the process of estimating the specified model, the technique of panel data analysis was utilized. In the empirical analysis, the fixed effects were chosen because they were found to be the most accurate representation of the relationships. According to the findings of this research project, the cumulative effects of financial risks do not have a negative impact on the performance of banks. To be more specific, the findings of the empirical study showed that the relationship between financial risk, as measured by Credit risk, and the financial performance of deposit money banks in Nigeria is not significant in any way. The level of risk posed by liquidity is a significant factor in determining the performance of deposit money banks in Nigeria during the time period under investigation. In Nigeria, the effects of market risk, interest rate risk, and operational risk did not in any way significantly affect the performance of banks.

The banking sector is essential to the global economy, functioning as a central financial hub responsible for allocating funds, providing essential services, and assessing economic health. However, this pivotal role exposes banks to various risks, including geopolitical, credit, and financial risks. These risks arise from the banking sector’s role as a financial facilitator, its global reach, and its handling of complex financial instruments. A quantitative approach is employed in this research, utilizing multiple regression analysis to analyze the impact of geopolitical, credit and financial risks on bank performance in the ASEAN region. The data analyzed from 2013 to 2022, using a purposive sample yielding 690 samples, reveals that geopolitical risk, credit risk, and financial risk have a negative impact on bank performance. These findings offer valuable insights for policymakers and regulators, informing the development of targeted regulations to address the specific risk landscape faced by banks and potentially enhancing financial stability.

This study tried to assess factors affecting the efficiency and performance of Ethiopian commercial banks. Nine years audited financial data (i.e.2010-2018) was used to analyze the effect of explanatory variables on the explained variables using explanatory research design with quantitative research approach. Banks play a great role in the development of the countries. They act as financial intermediaries between the parties with lack of capital and parties with surplus capital. In order to perform their functions first their financial healthiness should be improved. In this study performance of the banks was measured by ROA and efficiency of the banks by efficiency ratio. On the other hand, factors that could be affect the performance of the banks were capital adequacy, assets quality, management capacity, earning quality, liquidity position, GDP and age of banks were used using different measurement mechanisms. Random effect GLS regression result indicated that management capability, assets quality and earning quality significantly affect the performance of the banks measured by ROA. On the hand, assets quality, earning quality, liquidity and age of the banks has significant effect on the efficiency of the banks. Capital adequacy, GDP and age of the banks have no impact on the ROA, and capital adequacy, management capacity and GDP do not have significant effect on the performance of the banks measured by efficiency ratio. According to the finding, management capability and earning quality have positive effect on the performance of the banks. Keywords: CAMEL, ROA, Performance of the banks, Efficiency ratio and commercial banks DOI: 10.7176/RJFA/11-5-01 Publication date: March 31 st 2020

Introduction: Banks are often faced with risks that are mostly financial in nature. Effective management of risk is a prerequisite for sound financial performance of financial institutions. This study therefore analyses the effect of credit risk on financial performance of commercial banks listed at the Nairobi securities exchange. The specific objective was to determine the effect of credit risk on financial performance of commercial banks listed at the Nairobi securities exchange. Theories and models reviewed were the Capital Asset Pricing Model, Portfolio Theory, theory on risk and leverage and credit risk theory. Methods: A positivism research philosophy was adopted.The study used a longitudinal research design. A target population of 11 Commercial banks listed at the Nairobi securities exchange was considered. The data was analyzed using Statistical package of social studies version 20.0. The data was analyzed using Karl Pearson correlation and regression inferential statistical techniques. Results: The results showed that there was a significant strong correlation between credit risk and financial performance as proxied by ROE (r = -.601**, p =.003). The study found that credit risk significantly affects ROE (? = -.601, p = 007, ?<0.01). The model had an adjusted r square value of 0.323 implying that 32.3% of the total variation of financial performance of commercial banks is explained by credit risk. Conclusion: The study findings affirm that credit risk has a significant negative effect on banks financial performance. Upsurge in the banks ratio of nonperforming loans to total loans & advances results into the reduction of the bank’s financial performance. Recommendations: The management of commercial banks should determine effective credit risk management strategies that could help in reduction of loan default rates by customers. Extensive loan underwriting should be conducted to avoid over or under charge on prospective customers. Progressive implementation of the Basel Accord should be prioritized as opined by the Basel Committee submission on Banking Supervision. Credit risk inherent to the entire portfolio as well as the risk in individual credits as transaction practice should be managed well. Standardized approach, internal ratings based approach such as foundation and advanced approach should be considered by financial institutions when assessing credit risk.

PurposeThis paper examines the effect of economic policy uncertainty (EPU) on credit risk, lending decisions and banking performance of Tunisian listed banks over the period 1999–2019.Design/methodology/approachTo identify the relationship between EPU, credit risk, lending decisions and banking performance, we have proceeded with a fixed effects panel regression model over the period 1999–2019.FindingsOur empirical analysis showed a significant positive effect of EPU on credit risk and a significant negative effect on loan size and performance. We have also found that state-owned banks were the most affected by increasing EPU. Their credit risk has increased and their returns have decreased. While highly leveraged private banks have recorded a sharp decline in their results.Research limitations/implicationsFacing increasing credit risks, generated by EPU, Tunisian banks are allowed to revise their lending decisions to ensure consequently their sustainability and performance.Practical implicationsTunisian resident banks should set up a monitoring system and an early-warning system of credit risk in order to guarantee both, their performance and the sustainability of the economy's financing.Social implicationsA good banking governance and a stable economic and political environment are the key factors that improve the allocation of credit, credit risk diversification and the creation of added value for the different activity sectors.Originality/valueOn the theoretical as well as on the empirical level, the analysis of the Tunisia EPU on credit risk, bank lending strategy and banking performance was not handled previously in the literature. It was noted that state banks are more influenced by the increase of EPU. Their credit risk has increased and their returns have declined. However, private banks with a high leverage effect have recorded a net decrease in their results. Since the 2011 revolution, invisibility and EPU have largely influenced the bank lending decisions and subsequently banking performance.

The main purpose of this study is to examine the relationship between risk and performance of commercial bank in Malaysia. This study aims to investigate the impact of bank-specific factors which include liquidity risk, operational risk, and credit risk (microeconomic factors) and gross domestic product (GDP) and inflation rate (macroeconomic factors) on the performance of Malaysian commercial bank over the period of 2011 to 2015. The bank performance is measured by Return on Assets (ROA). The results imply that ratios employed in this study have different effects on the performance of bank. In this study, the findings show that only GDP has positive relationship with ROA. Four factors namely liquidity risk, operational risk, credit risk, and inflation rate have negative relationship with the ROA.

The main aim of this study was to identify the effect of credit risk management on profitability (business performance) of selected commercial banks of Ethiopia based on secondary data sources over the period of 2010-2021 G.C. The study employed a quantitative research approach with an explanatory research design. The result of regression analysis of the random effect model was applied to investigate the effect of explanatory variables on profitability.The finding of this study showed that capital adequacy has a positive and statistically significant effect on the financial performance of commercial banks in Ethiopia. Besides, variables like a loan to deposit ratio and loan provision ratio have a positive and statistically significant effect on the profitability of commercial banks. In opposite direction, non-performing loans, loan to total asset ratio, and cost per loan have a negative and statistically significant effect on ROA respectively.Apart from contributing to the body of existing literature on the effect of credit risk management on the financial performance of the banking sector, the study gives a guideline to both public and private banks in the world in general and Ethiopia in particular. It indicated that the financial performance of commercial banks can be improved by improving the credit risk management system.This study contributes by supporting that credit risk parameters such as loan to deposit ratio, loan provision, non-performing loan, loan to total asset ratio and cost per loan have a statistically significant effect on ROA respectively. Keywords: Credit Risk, Risk Management, Commercial Banks, Sidama ,Furra college DOI: 10.7176/RJFA/13-9-02 Publication date: May 31 st 2022

This study examines the macroeconomic and bank-specific elements that affect Nepal's commercial banks' financial performance. The financial information used in the study was taken from the 2012–2021 annual reports of the sampled banks. It covers the nine commercial banks that are active in Nepal at the time of the study. Descriptive and causal research designs were employed in the study. The performance of banks is evaluated using ROA, ROE, and NIM. The GDP growth rate and inflation rate are used as stand-ins for macroeconomic indicators. Credit risk, size, liquidity, asset quality, managerial effectiveness, and capital adequacy are the main internal elements affecting bank success. Financial ratios have been utilized in this study to analyze the banks' profitability. Bank-specific characteristics are also measured using financial ratios. The impact of macroeconomic and bank-specific factors on bank performance has been determined using a regression model. Banks have decreased their credit risk by decreasing non-performing assets. Because of the generally positive annual increase in GDP, the macroeconomic variable known as GPD has benefited the banks. Inflation and GDP have suffered over the past two years as a result of the COVID-19 pandemic. The top banks in terms of financial performance are NABIL, ADBL, and SCBN. The key factors influencing the profitability of Nepalese commercial banks include management effectiveness, capital base, credit risk, GDP, and inflation, according to the results of the regression study. Commercial banks' performance as assessed by ROA and NIM would improve with increased management efficiency. Commercial banks' performance as evaluated by ROE would improve with increases in capital base, liquidity, managerial effectiveness, and credit risk. In a similar vein, commercial banks' profitability is supported by GDP and inflation rates.

Does oil price aggravate the impact of economic policy uncertainty on bank performance in India?