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http://dx.doi.org/10.13106/jafeb.2021.vol8.no5.0639

The Role of Financial Risk Management in Predicting Financial Performance: A Case Study of Commercial Banks in Pakistan  

AHMED, Zeeshan (Department of Management Sciences, University of Lahore Gujrat Campus)
SHAKOOR, Zain (Punjab College (UCP) Gujrat)
KHAN, Mubashir Ali (Department of Management Sciences, University of Lahore Gujrat Campus)
ULLAH, Waseem (National Bank of Pakistan)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.5, 2021 , pp. 639-648 More about this Journal
Abstract
The study aims to examine the role of financial risk management in predicting the financial performance of commercial banks in Pakistan over the period of 2006-2017. For this purpose, risk management is measured through credit risk, interest rate risk, and liquidity risk, while financial performance is measured through ROA, ROE, and ROI. For this purpose, the dynamic panel model and two step GMM panel estimators are used to test the hypothesis empirically. The annual secondary data has been taken from the published financial reports of commercial banks of Pakistan. The results show that financial risk management significantly decreases the financial performance of commercial banks in Pakistan. Overall, the results are conclusive across the alternative measures of financial risk management in predicting the financial performance of the banking sector in Pakistan. The study suggested that managers should adopt risk management and risk hedging strategies to manage commercial banks' financial risks in Pakistan. They should hold extra cash while using the trade credit facilities. Previous studies mostly used a static model, but this study used a dynamic panel model. This study is among the first that focused on the various factors affecting the banks' performance in Pakistan.
Keywords
Credit Risk; Interest Rate Risk; Liquidity Risk; Financial Performance;
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