EVALUATING THE IMPACT OF RISK MANAGEMENT STRATEGIES ON FINANCIAL PERFORMANCE IN PAKISTAN’S BANKING SECTOR: A PANEL DATA ANALYSIS

Abstract

The banking sector plays a critical role in sustaining economic growth and financial stability, particularly in developing economies such as Pakistan. Commercial banks operate in a highly uncertain environment characterized by credit risk, liquidity constraints, capital adequacy pressures, and operational inefficiencies. This study empirically examines the impact of risk management strategies on the financial performance of selected commercial banks in Pakistan. Using panel data from Allied Bank Limited, Meezan Bank Limited, and First Women Bank for the period 2020–2024, the study evaluates how risk indicators—including non-performing loans, liquidity ratio, capital adequacy ratio, debt-to-assets ratio, interest rate spread, cost-to-income ratio, and bank size—affect profitability measures such as Return on Assets (ROA), Return on Equity (ROE), and Earnings per Share (EPS).

Secondary data were extracted from audited annual financial reports and regulatory disclosures. The study employs descriptive statistics, correlation analysis, and panel regression techniques (Fixed Effects and Random Effects models), supported by diagnostic tests including multicollinearity, heteroscedasticity, and autocorrelation checks. The empirical findings reveal that effective risk management significantly enhances financial performance, while excessive credit risk and operational inefficiency negatively affect profitability. The results offer valuable insights for bank management, regulators, and policymakers to strengthen risk governance frameworks and promote sustainable banking performance in Pakistan.