The Impact of the Interaction Between Credit Risk and Liquidity Risk on the Stability of Banks in Palestine رسالة دكتوراة

Abstract

This study aims to examine the relationship between credit risk and liquidity risk. Besides, to examine the effect of the interaction between credit risk and liquidity risk on bank stability in Palestine. The researcher used the pooled OLS, fixed effect, and random effect (GLS), Two stage least squares (2SLS) system, 2SLS regression and dynamicGMMto examine the impact of the interaction between credit risk and liquidity risk on the stability of banks in Palestineduring2012–2024.In conclusion, the results confirmed that there is a significant determinate effect of CR and LR on bank stability. On the other hand, the interaction of both CR and LR uniquely has a positive effect on BS. The greater increase in NPL clearly decreases BS, underlining the necessity for robust CR management and LLP. On the contrary, the greater liquidity improves BS and essentially decreases the negative effect of CR on BS. This result is distinctive to the Palestinian sector that holds abundance liquidity. This study also has practical implications for the board of directors of banking institutions, senior executive management, the Palestine Monetary Authority, and economic policy and decision makers to establish optimal strategies and policies to mitigate credit risk and liquidity risk management and to increase the efficiency of monitoring the liquidity of banking institutions as well as their credit risk to achieve financial stability. This study differs from previously conducted studies in that it examines the relationship between credit risk and liquidity risk in banking institutions in Palestine. Then, examining the effect of credit risk and liquidity risk on financial stability