Risk Management and Bank Profitability in Emerging Markets: Evidence from Egyptian Banks

This study explores the impact of risk management on the profitability of Egyptian commercial banks, with a particular focus on how macroeconomic conditions and bank-specific characteristics moderate this relationship. Utilizing a comprehensive panel dataset covering 11 major Egyptian banks over the period 2015–2024, the research employs rigorous econometric techniques to analyze the interplay between credit risk, liquidity risk, operational risk, market risk, and bank performance metrics such as Return on Assets (ROA) and Return on Equity (ROE). The most robust finding is the powerful and statistically significant negative relationship between Credit Risk and Return on Equity (ROE). This aligns perfectly with the consensus established in the literature review, which consistently links higher Non-Performing Loans (NPLs) and loan loss provisions to lower profitability. This confirms that effective credit risk management is a cornerstone of protecting shareholder value. The consistently negative coefficient for operational risk across both models underscores the fundamental importance of internal efficiency and cost control in driving bank performance. Furthermore, the strong positive impact of market risk suggests that, during the study period, the sampled banks were successful in managing their interest rate exposures to their advantage, likely by widening net interest margins in a volatile rate environment. Finally; this study demonstrates that profitability in Egyptian banking is not driven by a single factor but by a careful balancing act. While managing credit risk is paramount, superior performance is achieved by those institutions that can also maintain operational efficiency, strategically manage market risk, and use liquidity and capital levels.