Liquidity Risk Research Articles

The impact of IFRS 9, liquidity risk, credit risk, and capital on banks’ performance

This study investigates the impact of International Financial Reporting Standard (IFRS) 9, liquidity risk, credit risk, and capital on Jordanian banks’ performance. Aiming to mitigate liquidity and credit risks while ensuring adequate capital ratios to prevent bankruptcy. The study aligns with the findings of Abbas et al. (2019) and Abdelaziz et al. (2022), highlighting the influence of these factors on profitability in the Middle East and North Africa (MENA) region. Data from annual reports of 13 banks listed on the Amman Stock Exchange from 2012 to 2021 was analysed quantitatively, focusing on profitability metrics like return on assets (ROA) and equity (ROE). The results indicate a significant impact of IFRS 9 implementation and a negligible effect of liquidity risk. Notably, an increase in credit risk detrimentally impacts both ROA and ROE. The study also discovers a positive link between bank capital and ROA but a negative association with ROE, underscoring the nuanced interplay between risk management and financial performance in banking.

Risk Management and Financial Performance of Commercial Banks in Nigeria.

This study establishes the degree to which risk management has impacted profitability of commercial banks with the aim of contributing to improving the financial performance improvement. This study used secondary data from listed banks extracted from Central Bank of Nigeria list of financial institutions. The study was 2012 to 2021. The sample size of fourteen commercial banks in Nigeria was utilized for the study. Data were analysed using descriptive, Pearson correlation, r and Multiple linear regression (ANOVA) r statistical analysis. Findings were that the Pearson results posted significant relationships among credit risk, operational risk as measures of risks with profitability measures of net interest margin except the liquidity risk. The linear regression result indicated that Credit risk has significant effect on Net interest margin. However, there is no significant effect of liquidity and operation risk on net interest margin of commercial banks in Nigeria. The findings suggest that effective risk management strategy play a key role in commercial banks profitability in Nigeria. Therefore, this study recommended that effective risk management framework to improve financial performance.

Impact of financial risk management on performance of Nigerian commercial banks

This study explored the impact of financial risk management Nigerian commercial banks' financial performance from 2009 to 2022. Return on assets (ROA) is used to assess financial performance, and capital risk (CAR), liquidity risk (LQR), market risk (MKR), and operational risk (OPR) are used to proxy financial risks. Fixed effects panel data regression analysis is used in the study on a sample of 70 observations from five significant commercial banks in Nigeria. The findings demonstrate that, even while the model as a whole is statistically significant, demonstrating the joint significance of the financial risk factors, when bank-specific heterogeneity is taken into account, none of the risk variables individually significantly affect ROA. The lack of significance of individual predictors points to issues of model misspecification, omitted variable bias, multicollinearity and autocorrelation. Further research should focus on refining the econometric approach through inclusion of pertinent control variables, use of dynamic modeling techniques and addressing diagnostic concerns. From a policy perspective, the findings highlight the imperative of enhancing risk management practices and prudential oversight to safeguard bank profitability and financial stability. The study provides a baseline model and recommendations for improving modeling strategies to gain richer insights into the financial risk-performance nexus for Nigerian commercial banks. With a robust empirical approach, valuable policy guidance can be provided to promote sound risk management systems and regulations for a profitable, stable and resilient banking sector that supports Nigeria's economic growth.

Unrealized asset loss, liquidity risk from uninsured deposit outflows and bank runs: Evidence from the 2023 banking stress

Unrealized asset loss, liquidity risk from uninsured deposit outflows and bank runs: Evidence from the 2023 banking stress

Liquidity risk and market value of insurance companies in Nigeria

The study examines the market value effect of liquidity risk of insurance companies in Nigeria. Liquidity risk has caused market value related problems and even insolvencies in the Nigeria insurance industry in the past and it remains a key risk for insurance companies to manage it now and in the future. Twenty seven (27) quoted insurance companies were used in the study. Ex-post facto research design method was also employed while the panel data were sourced from the Securities and Exchange Commission (SEC) Statistical Bulletin, Nigerian Stock Exchange (NSE) and Audited Annual Financial Reports of the studied companies from 2004 to 2023. This research adopts stationarity test, cointegration test, and pooled least squares regression test methods. The finding shows that there are significant influences of liquidity ratio, leverage ratio and firm size on market value of insurance companies in Nigeria (p = 0.0000, 0.0019 & 0.0000 < 0.05). This study concludes that there is a significant market value effect of liquidity risk of insurance companies in Nigeria. Insurance companies should have enough cash to meet their obligations both in short run and long run. There is need for regular cash flow modeling, which can project potential liquidity needs from the liability side of the balance sheet. Also, a liquidity-adjusted assets analysis can be applied to asset positions to estimate the cost of supplying liquidity from the asset side of the balance sheet to match those liability cash flow needs.

Pair Tarding and Residual Risk: A Case Study Based on the China’s Securities Firm

With the development of the financial field, there are more and more hedging strategies accompanied by an increasing number of residual risks in these strategies. These risks are generally ignored by people, resulting in losses. This paper begins with CITIC Securities, the leader in China’s securities industry, and analyzes its large-scale paired trading case, spreading spreads in the A-stock market. Firstly, at the macro trading level, this paper finds that there are still credit risks and liquidity risks in the trading of this investment portfolio by referring to the prospectus of CITIC Securities’ bond offering. It puts forward relevant suggestions to reduce these risks. Next, the focus shifts to the analysis of the portfolio strategy itself. The paper identifies four risk points: stock price rise in advance, abnormal events, reduced hedging opportunities, and market irrationality. It also provides suggestions on how to mitigate losses caused by these remaining risks. For example, setting up profit and loss points, establishing relevant departments to control the remaining risk points, maintaining good customer credit, and improving the company’s credit rating.

ФИНАНСОВЫЙ МЕНЕДЖМЕНТ И УПРАВЛЕНИЕ РИСКАМИ В СОВРЕМЕННОЙ ЭКОНОМИКЕ

The excitement around the financial risks of corporations is growing. In these circumstances, companies of all types and sizes want to have a reliable financial risk management system that would comply with legal requirements, contribute to making more effective decisions and improve the efficiency of work. Financial risk management specialists work with financial institutions and other corporate clients to achieve these goals. Banks and financial institutions are traditionally engaged in financial risk management, but due to the nature of these activities, institutions are subject to various shares of market, credit, operational risks, as well as liquidity risk, which, if properly managed, can bring significant profits or, conversely, if poorly managed, can lead to the bankruptcy of a bank or financial institution.

Deposit Insurance, Uninsured Depositors, and Liquidity Risk During Panics

Deposit Insurance, Uninsured Depositors, and Liquidity Risk During Panics

Examining the moderating effect of bank size on the financial risk and performance linkage of Islamic commercial banks

Financial performance is very important for Islamic banks to ensure the sustainability of their business in providing banking products and services according to Sharia principles or Islamic law. This research examines the impact of financial risk on the financial performance of Indonesian Islamic commercial banks (ICBs), with bank size as a moderating variable. The research was conducted on all Indonesian ICBs from 2017–2021. Fixed effects models are employed to account for potential heterogeneity across banks and control for time-invariant unobserved factors. These models allow for estimating the within-bank variation over time, capturing constant bank-specific characteristics over the study period. The results of this research state that financing and operational risks significantly negatively impact financial performance. In contrast, liquidity risk does not significantly negatively impact financial performance. Furthermore, from testing the moderation hypothesis, the results of this study state that total financing reduces the significant negative effect of financing risk and operational risk on ICB Indonesia’s financial performance. However, total financing does not reduce the significant negative effect of liquidity risk on the financial performance of Indonesian ICBs.

Накопичувальне пенсійне забезпечення в системі трансформаційних пріоритетів післявоєнної відбудови України

The aim of the article is to disclose a systematic approach to the formation of mandatory accumulative pension provision on the basis of the object-subject approach in the coordinates of «effectiveness – risks». The system of mandatory accumulative pension provision is proposed to be considered as an aggregate of interrelated elements, in particular, such as: objects, subjects, tasks, principles, sources of financing and other components that ensure effectiveness and focus on achieving social and economic effect, taking into account the existing risks of external and internal nature. The main objective of such a system is specified, which is to accumulate a sufficient amount of pension contributions to ensure appropriate pension payments, taking into account the need to form investment income adjusted for the inflationary component, existing risks and restrictions on the placement of pension assets. It is noted that the accumulative mandatory pension provision in the conditions of wartime and post-war recovery of Ukraine should be considered as an element of the transformation of the pension system. The social effect is achieved in the form of accumulation of a supplement to the basic old-age pension for pensioners, which reflects the receipt of pension payments both immediately and in installments under the agreement and depends on the diversification of investments in cash on deposit pension accounts, assets in securities and other assets not prohibited by current legislation. It is expedient to consider the economic effect as a source of financing economic transformations through stock market instruments that activate the mobilization of financial resources for investment in various sectors of the economy. It is proposed to identify specific risks of accumulative pension provision, which include: operational, investment, risks of unbalanced liquidity; environmental, social and governance risks associated with the pension portfolio and its management, interest rate risk. Further research will be aimed at developing a conception for the development of pension provision in Ukraine in the post-war period, taking into account the legal, financial and organizational foundations for the introduction of mandatory accumulative pension provision.

The Determinants of Liquidity Risk of Dutch Lady Milk Industries Berhad from Food and Beverage Industry in Malaysia

The Determinants of Liquidity Risk of Dutch Lady Milk Industries Berhad from Food and Beverage Industry in Malaysia

Common Asset Holdings as an Amplifier of Open-Ended Funds Liquidity Risk: Evidence from Global Fixed-Income Funds

Common Asset Holdings as an Amplifier of Open-Ended Funds Liquidity Risk: Evidence from Global Fixed-Income Funds

Research on the Impact of Financial Technology on the Liquidity Risk of Commercial Banks

Research on the Impact of Financial Technology on the Liquidity Risk of Commercial Banks

The impact of working capital on the profitability and liquidity risk of Greek companies

The main purpose of this paper is to investigate whether working capital management (WCM) has a significant impact on the profitability of small and medium-sized enterprises (SMEs). This study intends to contribute to the existing literature by examining further whether there is a linear and a no-linear relationship (concave) between WCM and the profitability of Greek SMEs and by focusing on the economic crisis period that has a significant effect on the financial data of the Greek SMEs. The sample consists of 101 Greek SMEs from various industries (e.g., consumer goods, industrials, and healthcare) for the period between 2014 and 2020. The results led to the conclusion that the fixed effects model was appropriate for our data. Regarding the utilized indicators, the cash conversion cycle (CCC) is used as a proper indicator for the WCM while return on asset (ROA), return on equity (ROE), and return on capital employed (ROCE) are considered for profitability. Furthermore, this paper innovates, since each working capital factor was examined separately to identify to what extent they can affect profitability indicators on a stand-alone basis. According to the empirical results considering ROA there exists a concave relationship between profitability and WCM.

Liquidity Risk Management and Financial Performance of Listed Commercial Banks in Nigeria

The study investigates the relationship between liquidity risk management and financial performance of listed commercial banks in Nigeria. To achieve this, liquidity risk management proxies which have been widely used in the literature were employed namely deposit to total asset, total loan to deposit, liquidity asset to total asset and short-term liability to total asset ratios (independent variables) and a measure of financial performance return on asset (dependent variable). Ex-post facto research design was employed and panel data sourced from the yearly published annual reports and accounts of listed commercial banks in Nigeria. The fixed and random effects panel regression results reveal mixed evidence suggesting that the effect of liquidity risk management on financial performance of the listed commercial banks in Nigeria depends largely on measures of liquidity risk management used in this study. One key policy implication of this outcome is that maintaining a balanced lending and funding strategy is crucial for commercial banks. Hence, it recommends among others that managers of listed commercial banks in Nigeria should find an optimal balance that aligns with bank’s risk appetite and growth objectives and should also exercise caution in expanding lending.

The Pricing of Liquidity Risk Factors

The Pricing of Liquidity Risk Factors

ТЕОРЕТИЧНІ ЗАСАДИ УПРАВЛІННЯ РИЗИКАМИ НЕПЛАТОСПРОМОЖНОСТІ БАНКІВ З УРАХУВАННЯМ ІНТЕРЕСІВ РІЗНИХ ГРУП СТЕЙКХОЛДЕРІВ

The aim of this study is to conduct a critical analysis of existing theoretical positions on bank risk management, taking into account the interests of different stakeholder groups, and to develop a model for their communication and interaction with the bank to avoid insolvency risks. The relevance of this research is determined by the fact that, in modern economic conditions, the insolvency of banks affects not only the ability of clients to freely operate their funds placed in bank deposits but also significantly influences the stability of the country's financial system as a whole, since banking institutions are financial intermediaries in the financial market and significantly affect the macroeconomic indicators of the country. The following methods were used in writing the article: theoretical analysis, critical review, quantitative analysis, modeling, and analysis of legislation. The article thoroughly examines the important topic of managing insolvency risks of banks, focusing on the interests of various stakeholder groups. The author conducts an in-depth analysis of the relationship between banking liquidity and solvency, considering them as key elements of the stability of the banking system. The practical value of the article lies in the fact that the author presents a critical review of existing theoretical approaches to managing banking risks, including the assessment of quantitative-qualitative indicators of different types of banking liquidity risk. Special attention is given to the development of a model of communication and interaction between banks and their stakeholders, aimed at avoiding insolvency risks. The author proposes a comprehensive approach to identifying and managing different categories of risks, taking into account the interests of all stakeholders. A key aspect of the article is the development of an effective model for interaction with stakeholders, which allows optimizing risk management and ensures greater transparency and openness in banking activities. As a result, the article provides valuable information for professionals in the field of banking management and risk management, and can also be useful for developing strategies for banks' interaction with stakeholders in the context of managing financial risks.

Organisational renewal model for leveraging a bank’s sustainability and continuity during periods of discontinuities: a perspective from the caribbean financial markets

As financial institutions are often faced with a series of turbulences that unfold in the Caribbean financial markets, frequent organisational renewal and self-regeneration become crucial for bolstering a bank's continuity and sustainability. In that context, this study uses a qualitative research method to evaluate the effectiveness of the organizational renewal strategies that are often used by Caribbean banks during periods of turbulence as well as the major impediments of such strategies. Through such analysis, the study aimed to discern the organisational renewal model that can be extracted and suggested for leveraging a bank's sustainability and continuity in the periods of discontinuities. During periods of turbulence, findings from different banks that were drawn from St. Lucia, Barbados, Bahamas, St. Vincent, Grenada and the Dominican Republic signified the organizational renewal strategies that are often used by Caribbean banks to encompass financial service innovations, digital transformation, value-based marketing and CSR-based banking model. But even if that is the case, the efficacy of some of the organisational renewal strategies to turn around the bank's performance during turbulence was still found to be undermined by the hefty costs of change that must be incurred and organisational inertia that limits the flexibility and agility required for the banks in distress to respond. To mitigate such constraints, the study suggests the Organisational Renewal and Self-Regeneration Model which the contemporary banks can adopt to bolster their adaptability, continuity and sustainability during periods of discontinuities. But even if usage of such a model will leverage a bank's sustainability and continuity amid the Caribbean financial markets' discontinuities, future studies must still explore the impact of organisational renewal on a bank's liquidity risks' mitigation during periods of turbulence.

Navigating Uncertainty: Assessing the Impact of Financial Risk Management on Organizational Performance: Evidence from Insurance Companies in Pakistan

In an era marked by economic volatility and global uncertainties, the effectiveness of financial risk management strategies is crucial for businesses, particularly in the financial services industry. This research investigates the relationship between financial risk management (FRM) practices and organizational performance, specifically within the insurance sector in Pakistan. Moreover, the study aims to explore the role of financial risk management in enhancing the performance of insurance companies operating in the Pakistani market. It establishes a research model based on Financial Risk Management (Market Risk, Operational Risk, Liquidity Risk, and Legal Risk) and Organizational Performance (ROE). Researchers surveyed 13 insurance companies in Pakistan using non-probability and convenience sampling techniques and analyzed the data using EViews. The results indicate a significant and meaningful link between organizational success and financial risk management. This study seeks to incorporate best practices and focuses on developing a comprehensive understanding of the influence of organizational performance and financial risk management strategies.

Implementasi Peraturan Bank Indonesia tentang Risiko Pembiayaan Bank Syariah Indonesia (BSI) di Demak

<p><em>Risk management is crucial in organizing and implementing decision-making rules regarding customer financing. The analysis of all decisions made by the bank must be carefully planned and managed to avoid a higher incidence of non-performing loans, especially if the characteristics of consumers are not thoroughly observed, which is a part of the business unit facing management problems/risks such as murabahah financing. Risks arise due to dishonesty and economic difficulties of customers in transactions. Leaders, bank managers, and all divisions of the bank are expected to have the ability to reduce risks to achieve maximum profit orientation. The existing problems can be analyzed in terms of credit risk and liquidity risk regarding decision-making by management, the sequence of assets, and liabilities that must be considered to minimize emerging risks. The research method used is the qualitative descriptive approach. The results of this study show that the credit risk management applied by BSI in Demak is capable of setting limits on the losses of a market-risky transaction. PT. BSI KCP Demak, in relation to liquidity risk, strives for regular payments for consideration of existing exchange rates, thus being able to condition and meet customer financing demands.</em></p>