The Effect of Risk Management Activities on the Performance of Conventional and Islamic Banks in Bahrain

This study examines the impact of risk management activities on the financial performance of a selected number of conventional and Islamic banks in Bahrain during the period 2018–2022. Fixed effects models reveal capital risk, credit risk, liquidity risk, efficiency, and leverage significantly influence bank profitability. Specifically, higher capital adequacy and NPL ratios reduce profitability, reflecting constraints and losses from excess capital and deteriorating asset quality. Greater liquidity risk increases ROA but has no significant effect on ROE. Higher cost efficiency lowers profitability, implying a potential overemphasis on cost reduction. The findings suggest banks should develop risk management frameworks tailored to their business models to optimize the risk-return tradeoff.