Bank Stability under Threat: The Effects of Liquidity and Credit Risks
Keywords:
Risk assessment, Liquidity, Credit, Risk management, Banking systemAbstract
Forecasting financial risks can have an important effect on decisions related to granting facilities and the profitability of financial institutions. For this reason, researchers are continuously developing financial bankruptcy risk prediction models that investigate the course evolution of these models and show the importance of this issue. In Iran's capital market, like other capital markets in the world, many companies are operating. As a rule, the performance of some companies is strong, and the performance of others is weak. Forecasting financial risks can have an important effect on the decisions related to the granting of facilities and the profitability of financial institutions. For this reason, researchers are continuously developing models for predicting credit risk and liquidity risk, which examines the evolution of these models. It speaks for itself of the importance of this issue. In this regard, it can be said that predicting liquidity and credit risks is one of the most important. The issues are in the field of financial decision-making. When an industry does not have enough liquidity, it is able to increase funds or convert. It is not assets that this inability will affect profitability. According to the available evidence and field studies, it can be said that the main liquidity risk does not match the amount and maturity of debts and assets and, as a result, creates a negative liquidity gap. Our goal in this research is to state that since the effects and role of banks in the executive position of monetary, currency and credit policies play a special role, it is very important that many cases derived from liquidity and credit risks, such as lack of liquidity in the bank, can have consequences. Also, the issue of liquidity is much more vital for every bank than other issues. Our results show that credit risk and liquidity risk do not have a simultaneous economic interaction. However, both risks separately affect the stability of the bank.
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