The Nexus between Credit Risk and Liquidity Risk And Their Impact on Micro Finance Banks’ Performance: Evidence from Pakistan

Abstract

This study has focused mainly on identifying the impact of credit risk and liquidity risk on financial performance. This study has considered credit risk and liquidity riskas independent variables. Whereas, financial performance has been considered as the dependent variable in this study. However, this study has finalized micro finance banks in Pakistan to testify the relationship between variables mentioned above. The major emphasis in this study has been on assessing the relationship between credit risk and liquidity risk (independent variables) and financial performance (dependent variable) in micro finance banks in Pakistan.Secondary sources of data (annual financial statements) have been used for data collection regarding variables of this study from the period of 2014 – 2019. A sample size of30 observations has been finalized to represent the entire population. Collected data has then been analyzed through statistical instruments such as correlation and regression by using Strata. Based on the findings, it has been concluded that credit risk and liquidity risk have significant negative impact on financial performance in micro finance banks of Pakistan.