A Study on Association of Liquidity Risk and Financial Performance in Libyan Commercial Banks

Abstract

Financial performance analysis is the process of determining the operating and financial characteristics of a firm from accounting and financial statements. The literature provided some evidence to support a positive association between strategies that banks follow while mange the liquidity and risk and banks performance. In Libyan context, no studies have explored the characteristics of risk management in general and specifically liquidity risk management, or the effect of such management on banks performance. Libyan commercial banks operating in the western region were identified as the study's population. Boards of directors and members of risk committees, executive managers, and department heads of Libyan commercial banks were among the potential constituents. Liquidity risk management, as well as financial performance, were the primary criteria for selecting these special interest groups. Sample size was carefully chosen, and structured questionnaires were given to participants to elicit their opinions and knowledge about the impact of bank risk management on the financial performance of universal banks in this study. A partial least squares (PLS) technique was used to analyse the empirical data using structural equation modelling (SEM). Banks' liquidity risk management and financial performance, as measured by bank managers' perceptions, had a significant positive relationship. Thus, liquidity risk management is a major antecedent for the financial performance in the Libyan banking industry. Keywords: Liquidity risk, Financial performance, Risk management, Commercial bank, Libya