Integration of Financial Risks With Non Financial Risks: An Exploratory Study From Pakistani Context

Abstract

This research seeks to put forward a framework, from the perspective of practitioners and policymakers in Pakistan, about Financial and Non-Financial Risks integration and their impact on the Performance of Financial Institutions. We define total bank risk in terms of earnings volatility, which can be broken down into five major classes namey: market, credit, asset/liability, operational, and business. Out of these market, credit and Asset Liability risks are Financial Risks whereas operational and business risks are non-financial. Based on the thematic analysis of unstructured interviews of experts from the banking industry we position five sources of bank risks. We observe that the impact of Financial Risks decrease and Non-Financial Risks increase, along a spectrum from market risk to credit risk, asset/liability risk, operational risk, and business risk. The framework from this study could also be used to quantify total bank risks and contribution from each.

A Simple Linear Test of the Integration in Corporate Bond Markets

“…Eckhold (1998) looked at the influence of exchange rate, inflation, and interest rate on bond yield of New Zealand. Shah (2019) have tested the integration of financial and Non-Financial Risks for asian economies. Mahanti, Nashikkar, Subrahmanyam, Chacko and Mallik (2008) had presented that volume and trading activity are the critical determinants of Bond yield in India.…”