Liquidity Risk and Bank Financial Performance | ||
| التجارة والتمويل | ||
| Article 8, Volume 43, Issue 2, May 2023, Pages 41-80 PDF (1.4 M) | ||
| DOI: 10.21608/caf.2023.303697 | ||
| Author | ||
| Asmaa Hamdy Abdelaziz Mohamed El Mahdy | ||
| Faculty of Management Sciences, October University for Modern Sciences & Arts, Egypt | ||
| Abstract | ||
| In recent decades, businesses and academics in the field of financial management have developed an increasing interest in banks' liquidity. It has been recognized that banks’ liquidity may impact banks’ financial performance. Contemporary research shows that optimal liquidity reserves could enhance banks’ financial performance across several countries. Though, the question of “how liquidity dynamics impact banks' financial performance” has not been thoroughly conducted and studied in Egypt. This research intends to investigate the impact of liquidity risk on Egyptian banks' performance. This research also examines how nonperforming loans and liquidity risk interact to affect the performance of Egyptian banks. The empirical data is drawn from a sample of 396 observations for the period 2013-2021 for Egyptian banks listed on the Egyptian Stock Exchange. Mixed-effects models were used as the statistical tools to analyze the collected data. The return on asset, return on equity, and banks’ stock price are used as measures of banks’ performance. According to the empirical findings, there is a significant inverse impact of liquidity risk on bank financial performance as measured by ROA. Furthermore, there is a negative and significant association between nonperforming loans and bank performance as indicated by ROE. Moreover, for the stock price model, it is concluded that the interaction effect of liquidity risk and nonperforming loans on bank performance is significantly negative. This demonstrates how procedures for managing liquidity risk are crucial in establishing banks' profitability and preventing banks' failure. Consequently, banks must practice prudent risk management strategies to protect the interests of investors | ||
| Keywords | ||
| Liquidity Risk; Non-Performing Loans; Bank Performance; Egypt | ||
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