The Relationship between Liquidity Risk Management and Commercial Bank Performance: Evidence from the Western Balkans

Abstract

The current study examines the relationship between liquidity risk management and the performance of commercial banks in the Western Balkans between 2015 to 2020. This relationship is examined by using secondary data from the financial statements. Financial performance is measured by return on assets, equity and net interest margin. Liquidity risk is represented by the quick ratio, current ratio, loan-to-deposits ratio, loan-to-assets ratio, cash and investment-to-deposit ratio, capital adequacy and interest coverage ratio. The Ordinary Least Squares model was used to process the data. The study's findings show that return on assets has a negative relationship with the current ratio but a positive relationship with loans-to-total deposits, cash plus investments-to-total deposits and capital adequacy ratio. Return on equity has a negative relationship with the quick ratio and interest coverage ratio but a positive relationship with the current ratio, loans-to-total assets and cash plus investments-to-deposits ratio. Net interest margin is negatively related to loans-to-total deposits, capital adequacy interest coverage ratio and positively related to loans-to-total assets. These findings have implications for Western Balkan banks’ variables use to manage liquidity risk. The findings of the study are significant as they can be use to enhance liquidity risk management by influencing performance indicators for Western Balkans bank.

GCC banks liquidity and financial performance: does the type of financial system matter?

“…For instance, Rudhani and Bala [58] and Ahamed [4] demonstrated a positive effect. However, other studies reveal that banks with higher liquidity risk increase bank's profitability [20,41,48]. Earlier studies have used different measures of liquidity risks [e.g., 50,63,41,24].…”

“…However, other studies reveal that banks with higher liquidity risk increase bank's profitability [20,41,48]. Earlier studies have used different measures of liquidity risks [e.g., 50,63,41,24]. We construct three measures of liquidity risks following recent literature [8,23,57].…”

“…As a result, banks have to maintain sufficient liquidity to meet customers' needs and reduce financial risks [19]. Liquidity has been defined by Kalimashi et al [41] as a process of payment of current and long-term obligations of a bank at the optimal time. Jenkinson [39] indicated that liquidity risk means the bank can't meet all depositors' requests either totally or partially on time.…”

“…On the other hand, Musiega et al [48] and Chowduhry and Zaman [20] reported that liquidity and bank performance are harmful in the case of developing countries. Kalimashi et al [41] examined the effect of liquidity risk management on the performance of commercial banks in the Western Balkans. They found a negative association between liquidity risk and bank performance.…”

Analysis of Corporate Governance Practices on Financial Performance of Foreign Banks in Kenya: A Case of Standard Chartered Bank

“…It highlights the significance of training aspiring women and long-term chairs, committees, and individual leaders to have a positive impact on their vision (Chen, 2020). Justification for good CG became even more apparent due to emergence of financial turmoil in the USA, as evidenced in the twin scams of Worldcom and Enron in 2002 (Kalimashi, Ahmeti & Aliu, 2022) Marcos & Fortune, and Haiti's Baby Doc, as well as various Kenyan scandals, underscore the crucial role of Corporate Governance. In recent times, CG has garnered widespread attention and become a topic of great public interest.…”