International Journal of

ADVANCED AND APPLIED SCIENCES

EISSN: 2313-3724, Print ISSN: 2313-626X

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 Volume 10, Issue 8 (August 2023), Pages: 64-70

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 Original Research Paper

Exploring the interplay of credit and liquidity risks: Impacts on banks’ profitability

 Author(s): 

 Kais Ben-Ahmed 1, 2, *, Naziha Kasraoui 3, Asaad Soulami 4

 Affiliation(s):

 1Department of Finance, College of Business, University of Jeddah, Jeddah, Saudi Arabia
 2High Institute of Management, University of Sousse, Sousse, Tunisia
 3Department of Finance, University of El-Manar, Tunis, Tunisia
 4Business Administration Department, Applied College, King Abdulaziz University, Jeddah, Saudi Arabia

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 * Corresponding Author. 

  Corresponding author's ORCID profile: https://orcid.org/0000-0003-4058-4445

 Digital Object Identifier: 

 https://doi.org/10.21833/ijaas.2023.08.007

 Abstract:

This research delves into the intricate relationship between credit and liquidity risks and their far-reaching consequences on the overall profitability of banks. Leveraging a comprehensive dataset comprising 132 observations across twelve distinct financial institutions, spanning the period from 2009 to 2019, the analysis employs a sophisticated empirical framework grounded in simultaneous equations. By incorporating three meticulously chosen control variables, this approach adeptly disentangles the distinct effects of credit and liquidity risks on banks’ financial performance. The methodological trajectory unfolds in a sequential manner, commencing with isolated scrutiny of the individual impacts of credit and liquidity risks on banks’ profitability. This evaluation is gauged through robust metrics such as Returns on Assets and Economics. Subsequently, a nuanced exploration ensues, probing the intricate interplay between these two risks and their combined effect on banks’ profitability. Eminent findings emerge from this investigation, underscoring the adverse consequences of escalated credit risk on bank liquidity, accompanied by a simultaneous elevation in overall risk exposure. This disturbing trend notably casts a substantial shadow over banks’ profitability. Conclusively, this study consistently establishes the detrimental impact of the confluence of credit and liquidity risks on the financial well-being of banks. Evidently, this interaction exerts a negative influence on banks’ profitability, a perspective persistently reinforced by the authors’ analyses. The insights garnered from this study hold notable implications for the banking community and financial practitioners. By enhancing comprehension of the distinct attributes of credit and liquidity risks, this research contributes to a refined understanding of risk management dynamics. Moreover, it accentuates the urgency of fortifying the holistic management of liquidity-credit risks, a call to action that resonates deeply with both bankers and financiers seeking to navigate the intricate terrain of contemporary financial landscapes.

 © 2023 The Authors. Published by IASE.

 This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

 Keywords: Credit risk, Liquidity risk, Banks’ profitability, Panel data analysis, Interaction effect

 Article History: Received 21 October 2022, Received in revised form 19 June 2023, Accepted 25 June 2023

 Acknowledgment 

This work was funded by the University of Jeddah, Jeddah, Saudi Arabia, under grant No. UJ-23-DHRP-20622-1. The authors, therefore, thank the University of Jeddah for its technical and financial support.

 Compliance with ethical standards

 Conflict of interest: The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

 Citation:

 Ben-Ahmed K, Kasraoui N, and Soulami A (2023). Exploring the interplay of credit and liquidity risks: Impacts on banks’ profitability. International Journal of Advanced and Applied Sciences, 10(8): 64-70

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 Tables

 Table 1 Table 2 Table 3 Table 4 Table 5 Table6 

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