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The Impact of Risk Management on Banks’ Profitability: A South African Perspective

Author

Listed:
  • Tsitohaina Razermera

    (University of Cape Town, South Africa)

  • Pradeep Brijlal

    (University of Cape Town, South Africa)

  • Nomthandazo Jwara

    (University of Cape Town, South Africa)

Abstract

Global research has shown that different risk management practices in banks and companies, in general, may significantly influence their profitability. This research paper investigates the impact of credit risk, liquidity risk and market risk in the banking sector in South Africa. It adds to the literature by improving the existing models and by exploring the impact of the coronavirus on the profitability of the same banks through the lens of risk management. The research used quantitative data collected from the six largest commercial banks in South Africa during the period (2013-2020),before Covid-19. Several panel regression models were developed to incorporate credit, liquidity, and market risks. The results showed that the primary determinant of bank profitability was the management of non-performing loans, implying that other financial risks may already be appropriately managed or diversified away in the South African context. However, banks and regulators should place more importance on evaluating the creditworthiness of their current and prospective customers.

Suggested Citation

  • Tsitohaina Razermera & Pradeep Brijlal & Nomthandazo Jwara, 2024. "The Impact of Risk Management on Banks’ Profitability: A South African Perspective," International Journal of Economics and Financial Issues, Econjournals, vol. 14(4), pages 56-65, July.
    • Handle: RePEc:eco:journ1:2024-04-6
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    References listed on IDEAS

    as
    1. Goodhart, C., 2008. "Liquidity risk management," Financial Stability Review, Banque de France, issue 11, pages 39-44, February.
    2. zulfikar, rizka, 2018. "Estimation Model And Selection Method Of Panel Data Regression : An Overview Of Common Effect, Fixed Effect, And Random Effect Model," INA-Rxiv 9qe2b, Center for Open Science.
    3. Olufemi Adewale Aluko & Funso Tajudeen Kolapo & Patrick Olufemi Adeyeye & Patrick Olajide Oladele, 2019. "Impact of Financial Risks on the Profitability of Systematically Important Banks in Nigeria," Paradigm, , vol. 23(2), pages 117-129, December.
    4. Van Gestel, Tony & Baesens, Bart, 2008. "Credit Risk Management: Basic Concepts: Financial Risk Components, Rating Analysis, Models, Economic and Regulatory Capital," OUP Catalogue, Oxford University Press, number 9780199545117.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Risk Management; Banks Profitability; Credit Risk; Liquidity Risk; Market Risk;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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