The Effect Of Liquidity Risk On Profitability By Using A Structural Regression Model: Study Of Its Application On A Sample Of Private Banks Listed In The Iraq Stock Exchange For The Period 2016-2020
Keywords:
Liquidity risk, profitability, structural regression modelAbstract
This paper examines the impact of liquidity risk on a bank's profitability. Using the annual data of (4) Iraqi private banks listed on the Iraqi Stock Exchange for the period (2016-2020), the research problem was formulated, which refers to a question about the possibility of the impact of liquidity risk on the bank’s profitability and to test the research hypothesis, a structural regression model was adopted. It was found that there is a significant and statistically significant relationship between liquidity indicators (loans to deposits and current assets to deposits) with the profitability index (return to deposits) as well as the indicator (loans to deposits) with the profitability index (return to assets). We recommend the need to balance between liquidity and profitability by maintaining sufficient liquidity, whether in the form of cash or balances with other banks to reduce the risk of liquidity, and to employ the largest possible amount of liquidity to achieve profitability, as well as diversifying investments in banks, the research sample to invest the high liquidity available to them. This reflects positively on profitability, in addition to the need for banks to encourage an increase in the volume of deposits.
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