Abstract:
This study investigates the relationship between credit risk, liquidity risk,
macroeconomic factors and the financial performance of commercial banks in Pakistan.
Since the banking sector plays a vital role in the country's economic development,
understanding the dynamics of these risks is essential to ensure stability and
profitability. The study uses quantitative analysis to assess how fluctuations in credit
risk, liquidity risk and key macroeconomic indicators such as GDP growth, inflation
and interest rates affect banks’ financial performance. The results show that higher
credit risk and liquidity problems have a negative relation on profitability and
operational efficiency. Furthermore, macroeconomic factors significantly shape the
banking environment, influencing both risk profile and financial performance. The
study concludes with recommendations for improving credit and liquidity risk
management policies and strategic planning practices in commercial banks to mitigate
the negative factors and promote sustainable growth in an unstable economic
environment
