The Effect of Credit and Liquidity Risk Management on Financial Performance: The Moderating Effects of Uncertainty Dynamism in Libyan Commercial Banks

Abstract

Financial performance is used to determine a firm's operating and financial characteristics. The literature suggests a link between bank performance and the strategies used to manage liquidity and credit risk. No studies have been conducted in Libya on risk management, specifically liquidity and credit risk management, or their impact on bank performance with dynamism as a moderator. The study's population were western Libyan commercial banks. Potential constituents included directors and risk committee members, executive managers, and department heads of Libyan commercial banks. These special interest groups were chosen based on their financial performance and credit and liquidity risk management. The sample size was carefully chosen, and participants were given structured questionnaires to express their views on the impact of bank risk management on universal banks' financial performance. The empirical data were analysed using partial least squares (PLS) (SEM). Bank managers' perceptions of credit risk management and financial performance correlated positively. The researchconfirmed a link between liquidity risk management and financial performance.With regards to the environmental dynamism as a moderater between credit risk management and financial performance, it is supported by the statistics analysis.  Thus, credit risk management and liquidity risk management are important determinants of Libyan banking performance. Moreover, environmental dynamism found to has influential impact on the relationship between credit risk management and liquidity risk management implying that financial performance can be easily achieved with the interference of environmental dynamism.