Analyzing the Role of Liquidity and Credit Risk Management on the Performance of Financial Institutions: A Case of Emerging Economy

Abstract

This research paper examines the impact of liquidity and credit risk management on the performance of Pakistan's financial institutions. The study employs quantitative research methodology to collect secondary data from the annual reports of fifteen commercial institutions for the years 2012-2021. The researchers analyzed the data through panel regression analysis. According to the findings of the study, liquidity and credit risk management have a significant and positive effect on the financial performance of Pakistani institutions. This study is innovative because it focuses on the Pakistani financial industry, which has not been extensively examined in the literature. This study also contributes to the existing literature on the impact of liquidity and credit risk management on banks' financial performance. This study focuses on only 15 institutions in Pakistan, limiting the generalizability of the results. Future research can increase the sample size to include more banks and also consider other variables that may influence the financial performance of Pakistani banks. The study's findings can provide policymakers, regulators, and financial institutions with valuable insights to enhance their liquidity and credit risk management practices.