Banking Risks and Their Impact on the Profitability Indicator of Libyan Commercial Banks During the Period 2015–2024

Abstract

Banks are concerned with studying banking risks due to the challenges facing the economy in general and the banking sector in particular. The problem of the study lies in analyzing banking risks and their impact on profitability indicators during the period from 2015 to 2024, applied to all Libyan banks. This is addressed by answering the main research questions: What is the level of credit risk in Libyan commercial banks? What is the level of liquidity risk? What is the level of operational risk? What is the level of capital risk? And what are the differences among liquidity risk, credit risk, operational risk, and capital risk faced by commercial banks in Libya? The study aims to examine the nature of banking risks, namely credit risk, liquidity risk, operational risk, and capital risk, as independent variables, and their impact on profitability as a dependent variable. By conducting statistical tests on the study’s actual data using the SPSS program, the study found an inverse relationship between credit risk and profitability, represented by return on assets (ROA), net interest margin, and revenue profit margin. It also found an inverse relationship between liquidity risk and profitability, represented by ROA, net interest margin, and revenue profit margin. Furthermore, an inverse relationship was identified between operational risk and profitability in terms of net interest margin and revenue profit margin, while a positive relationship was found between operational risk and profitability in terms of ROA. Additionally, there is an inverse relationship between capital risk and profitability, represented by ROA, net interest margin, and revenue profit margin. The study recommends adopting the results of the regression coefficients obtained, as they can assist decision-makers in predicting the magnitude of the impact of risks on performance indicators.