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The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Western Balkan Before and During COVID-19

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  • Agnesa Krasniqi Pervetica
  • Skender Ahmeti

Abstract

Financial management crises all over the world have demonstrated the need for risk management techniques for businesses seeking to maintain shareholder and consumer support. The purpose of this study is to assess the impact of risk management on the financial performance of commercial banks in the Western Balkans (WB) before and following COVID-19 for the years 2016-2021, with 40 commercial banks selected to represent all WB countries’ commercial banks as a whole. The study revealed that risk management has a significant impact on the financial performance of WB commercial banks as assessed by Return on Assets (ROA) and Return on Equity (ROE). The research was done through the panel regression using fixed and random effect, whereas a dependent variable we have ROE and ROA and as independent variables, we have Solvency risk, Liquidity Risk and Credit Risk and COVID-19 as a dummy variable. Based on the panel regression model, it is found that the four independent variables have a significant impact, in the dependent variable. The results of this study lead us to recommend that central banks maintain strict rules about the minimum amount of equity required or the requisite ratios for deposits and loans. Since credit risk has a detrimental effect on the profitability of commercial banks, keeping a tight eye on lending activities and paying special attention to non-performing loans is also crucial.

Suggested Citation

  • Agnesa Krasniqi Pervetica & Skender Ahmeti, 2023. "The Effect of Financial Risk Management on the Financial Performance of Commercial Banks in Western Balkan Before and During COVID-19," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 7, pages 179-190.
    • Handle: RePEc:bas:econst:y:2023:i:7:p:179-190
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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