IMPACT OF FINANCIAL RISK ON BANK PERFORMANCE CASE STUDY OF HABIB BANK LIMITED

Abstract

The study investigates the impact of financial risk on bank performance of Habib Bank Limited using the annual financial time series data from 2005 to 2021. The dependent variable is the bank performance which is measured through the return on equity. The independent variables are the financial risks, which includes the credit risk, liquidity risk, and market risk. The findings suggest that the credit risk and liquidity risk has negative significant effect on the return on equity, which means that the increase in credit risk and liquidity risk would result in declining the profitability ofHabib Bank Limited. Moreover, the operational risk has positive significant effect on the return on equity. The study concludes that Habib Bank Limited need to control the credit risk and liquidity risk to perform well in the market. It is recommended that the Habib Bank Limited must adopt strict policies and must do risk analysis of each borrower before issuing loan. To control the liquidity risk Habib Bank Limited must offer attractive financial products to motivate the depositors to deposit more in account rather than handling cash.