The Impact of Banking Activity Risks on Banking Safety: An Empirical Study on Major Libyan Commercial Banks

Abstract

This study investigates the empirical impact of banking activity risks across five core dimensions (credit risk, liquidity risk, operational risk, market risk, and capital adequacy risk) on the financial safety level of major commercial banks operating in Libya. Employing a descriptive-analytical approach, the study surveyed a comprehensive census of 240 professional and managerial staff across five specialized departments in the three largest Libyan commercial banks (Jumhouria Bank, Sahara Bank, and National Commercial Bank), with 80 respondents per institution. Using SPSS v26, data were examined via Principal Component Analysis (PCA) and Multiple Linear Regression, following diagnostic confirmation of no multicollinearity (VIF < 5) and error independence (Durbin-Watson = 2.197). The empirical findings demonstrate that banking activity risks jointly explain 64.3% of the variance in banking safety (R² = 0.643, F = 40.982, p < 0.001). Market risk exhibited the highest explanatory power (88.7%), followed by capital adequacy risk (78.3%) and liquidity risk (77.3%). Multiple regression confirmed significant adverse effects of non-performing loans, funding liquidity pressure, operating costs, exchange rate shocks, and inadequate regulatory capital on bank safety. Conversely, robust collateral policies, liquidity buffers, operational governance, and loss-absorbing capital significantly bolstered stability. The study recommends instituting enterprise-wide risk management, adopting financial hedging instruments, and strengthening prudential capital adequacy to navigate economic volatility