Abstract:
Purpose
The purpose is to find ifthe credit risk and liquidity risk affect the financialperformance of
the banks ofPakistan.
Methodology & Design
To conduct this research the data oftwelves banks that are operating in Pakistan are used.
The data was collected through the annual reports ofthe banks. E-view software is used to
test the data.
Findings
The researcher was able to find the effects of credit and liquidity risk on the financial
performance (ROA) of the banks of Pakistan, statistically significant. Advance-to-deposit,
loan loss coverage, the level ofnon-performing loans harm the profitability ofthe banks of
Pakistan, where else, asset-to-advance, gross spread, capital adequacy positively affects the
profitability of the banks operating in Pakistan. Further, it was found that the size of the bank
does not affect the profitability of the banks.
Limitations and Recommendations
The variables were found to have no relation with the return on equity (ROA) other than the
grossspread ratio, it is suggestedforfuture studies to select different indicators ofcredit risk
and liquidity risk of the banks of Pakistan. The banks need more appropriate credit risk and
liquidity risk management to reduce the level of non-performing loans to establish a lower
loan coverage ratio, while they are earning well through interest and have strong capital
adequacy. Where else, the banks seem to be relying on deposits to finance the advances
which might cause liquidity issues when in need
