BANK LIQUIDITY RISK MANAGEMENT IN PAKISTAN: DOES LOAN QUALITY, ASSET QUALITY AND FUNDING MANAGEMENT AEFFECT?

Abstract

Purpose: The study encompasses assessment of Liquidity Risk Management (LRM) comparatively among conventional banks (CnBs) and Islamic banks (IsBs) operating in Pakistan. Design/Methodology/Approach: The impact of independent variables Asset Quality (AQAL), Funding Management (FMAN) and Loan Quality (LQAL) have been observed on LRM through multiple hierarchical regression model and descriptive analysis. Findings: The results for CnBs show that the LQAL and FMAN has positive impact on LRM while AQAL has negative impact. Similarly, for IsBs, the AQAL and FMAN positively affect LRM while LQAL has negative impact on the same. Further, the average resulting values of financial rations exhibit the outcome of comparatively better performance of IsBs than CnBs. Originality/Significance: This may considered be the first study in terms of Pakistani Islamic and conventional banks liquidity risk management analysis with respect to significant variables like LQAL, FMAN and AQAL presenting a comparative analysis. Research Limitations/Implications: The paper develops a framework through important variables LQAL, FMAN and AQAL for assessment of most sensitive banking risk aspect of Liquidity risk management and its assessment for massively growing Islamic banks. Practical and Social Implications: The paper provides in-depth analysis and insight to banking industry stakeholders, regulators, Government policy makers, corporate management and visionary research scholars regarding present situation of management of liquidity risk in IsBs and CnBs.