THE IMPACT OF RISK MANAGEMENT ON FINANCIAL PERFORMANCE

Abstract

Commercial banks that control a large proportion of overall assets of the financial sector primarily rely on extending credits, and banks may raise their earnings through this function which constitutes one of the major functions of commercial banks.

Consequently, and due to the wide multiple risk exposures of commercial banks, the issue of capital structure has become a vital element in determining the viability of banks and their ability to withstand various risks involved. Hence, risk management as such has become an essential part of evaluating various risks, including credit risks, liquidity risks, solvency risks and so forth.

It is necessary to remember that banks differ from one to another in many respects, namely, their goals, services and strategies. Thus, banks are facing various risks in their day-to-day operations.

The research here has implemented a quantitative methodology throughout distributing a survey over a defined number of respondents, and the results were viewed through the prism of regression analysis and Pearson correlations. The obtained results prove there is a direct relationship between market risk, liquidity risk, credit risk, and solvency risk. The results also prove that the higher the risk management ratios are managed, the higher the net income will be.