ABSRJ 2019 Volume 10, Number 2

The effect of liquidity risk on financial performance

Leonora Haliti Rudhani
University of Applied Sciences in Ferizaj, Republic of Kosovo
leonora.rudhani@ushaf.net

Driton Balaj
University of Pristina  “Hasan Prishtina”, Republic of Kosovo
driton.balaj@uni-pr.edu

Abstract
This paper aims to study the impact of liquidity risk on the performance of banks in Kosovo, for a period of six years. The analysis is based on linear regression. Liquidity risk indicators refer to the ability of the bank to absorb the liquidity shocks, L2 – the ability of the bank to cope with a high liquidity demand in the short term and L3 – the ability of the bank to face liquidity risk in the presence of non-liquid assets, while return on assets ROA and return on equity ROE are the determinants of performance. The results show that there is a positive and significant relation between liquidity risk and performance of the banks and concluded that commercial banks in Kosovo could raise the level of performance by improving their ability to cope with the liquidity shocks risk, the short-term liquidity risk and the risk from the presence of large non-liquid assets.

Keywords: performance of the banks; liquidity risk; commercial banks

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