Examining the impact of Capital, Liquidity and Exchange Rate Risks on the Financial Performance: Evidence From Banking Sector of Pakistan

Abstract

This study examines the impact of financial risk on financial performances of commercial and investment banks of Pakistan listed in Pakistan stock exchange (PSX) by using data sample of 12 commercial and 7 investment banks from the period of 2015-2021. However, selected financial risk consists of Capital risk, liquidity and exchange rate risk, and financial performance is measured by the return on assets (ROA), return on equity (ROE) and net interest margin (NIM). To achieve the objective of the study a panel regression analysis of the data method was used. At the time, data was collected from the annual financial statements of the banks and Pakistan stock exchange website. As from the analysis we found that for both models, there is an extremely significant relationships emerged between capital and liquidity risk and financial performance, and negligible relationships between exchange rate risk and financial performance for commercial banks, and moderate relationships between liquidity risk and financial performance, for investment banks. Due to the limited limit of current research various proposals may be made for further research such as research on other financial risks, other financial institutions and other financial performance measures not included in the current study.