ANALYZING THE EFFECTIVENESS OF RISK MANAGEMENT TECHNIQUES IN THE BANKING SECTOR OF PAKISTAN

Abstract

Purpose: Credit, market, liquidity, and operational risk are factors that influence risk management practices. This study examines how these factors relate to the overall performance of Pakistani commercial banks. The impact of risk monitoring and control mechanisms on Pakistani commercial banks’ performance is also examined.

Methodology: A quantitative research design was employed, drawing on data from commercial banks in Pakistan. Structured survey instruments and secondary financial data were analyzed using regression and mediation analyses to assess the impact of risk management practices and the role of risk monitoring and control mechanisms.  

Findings: The results reveal that there is an effective relationship between risk management practices and bank performance. The results reveal that the risk monitoring and control mechanism has a significant effect on risk management and mediates the relationship between risk management practices and the performance of commercial banks.

Policy Implications: The results underscore the necessity for banks to establish integrated and holistic risk management frameworks. Regulators and bank managers should emphasize strengthening monitoring and control systems to enhance resilience against financial shocks. By adopting proactive risk prevention strategies, banks can reduce their exposure to systematic vulnerabilities and improve their long-term sustainability.

Novelty and Originality

This study contributes to the literature by offering empirical evidence from Pakistan, where banking systems face structural and regulatory challenges. Unlike prior studies that often treat risk management practices in isolation, this study highlights the mediating role of risk monitoring and control, providing a more comprehensive understanding of how risk frameworks influence financial performance.