Volume 29, Issue 5, 2020
DOI: 10.24205/03276716.2020.1002
Credit risk, operational risk, liquidity risk on profitability. A study on South Africa commercial banks. A PLS-SEM Analysis
Abstract
The aim of the research was to explore the influence of credit risk, operational risk, and liquidity risk effect on bank profitability. The study sample was from registered banks on the Johannesburg Stock Exchange (JSE) for the period 2012-2018. Smart PLS-SEM was employed to investigate the impact of the dependent variable on the independent variables. The conclusions of this research indicated that credit risk (non-performing loan ratio, capital adequacy ratio, and cost per loan) has a significant positive association with bank profitability (ROA, ROE, NIM). Similarly, liquidity risk (current ratio, acid-test ratio, cash ratio) shown a positive and significant connection with bank profitability. However, operational risk (portfolio concentration, bank leverage, lawsuit, resignation of key directors) indicated a negative affiliation with bank profitability. The bank-specific risk shown a positive and significant nexus with credit risk, operational risk, and liquidity risk. it’s linked with profitability was insignificant. This investigation recommends that commercial banks take proper management of their operational risk by diversifying their investments into portfolios that will yield return, management of their internal and external operations, and decrease their leverage levels.
Keywords
credit risk, operational risk, liquidity risk, profitability, PLS-SEM