Applicability of the Risk Model Identified by Basel Framework on Advancing Financial Performance: Special Reference to Licensed Commercial Banks in Sri Lanka
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Date
2020
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Publisher
Uva Wellassa University of Sri Lanka
Abstract
The Basel framework is an international regulatory accord that introduced a specially
designed set of reforms to improve the regulation, supervision, and risk management of
the banking sector. Credit risk, market risk, liquidity risk, and operational risk are the
main four risk factors in the Basel III framework. As the risk being the main challenge
faced by the banks, they tend to apply the Basel framework to mitigate it but they are
exposed to various risks and thus the performance of the freamework is not guaranteed.
Therefore, this study endeavored to explore the applicability of the risk model identified
by the Basel framework on advancing the financial performance of licensed commercial
banks in Sri Lanka. Further, this study expects to identify other risk factors which are not
identified by the Basel III framework to develop a new risk model. This study was
conducted using a mixed-methods approach. The quantitative method was applied to
investigate the risk in Basel framework on financial performance and data were collected
from 10 licensed commercial banks for a span of 10 years. The qualitative approach was
used to identify other risks faced by the banks and data were collected from 10 bank
managers using the in-depth interview method. The panel data regression analysis was
used to analyze the quantitative data using E-views software. The thematic analysis was
used to analyze qualitative data. The results revealed that there is a significant
relationship between capital adequacy ratio in credit risk and the financial performance
while other risk factors show an insignificant relationship. Then, the researcher has
expanded the Basel Framework by introducing a new risk model using the thematic
analysis. The researcher recommended to apply the most compatible risk model to derive
better measurement to calculate bank risk in future research.
Keywords: Capital adequacy, Financial performance, Basel Framework, Bank risks
Description
Keywords
Business Management, Marketing, Financial Management, Banking