The Impact of Financial Risk Mitigation on Financial Sustainability in Banks: An Analytical Study of the Opinions of Auditors and Financial Managers in Private Banks in the Kurdistan Region of Iraq

Abstract

The present study aimed at examining the effect of financial risk mitigation on financial sustainability in private banks in the Kurdistan Region of Iraq from external auditors' and financial managers' perspectives. The study was quantitative analytical using a questionnaire that has been distributed to a sample of 117 respondents. Data analysis for descriptive statistics, correlation, and regression was used in SPSS software, while data analysis in terms of testing the structural relationship between the constructs was performed using SmartPLS 4 software with PLS-SEM approach. Financial risk mitigation was assessed through five aspects: credit risk, liquidity risk, market risk, capital adequacy risk and operational risk. The results showed that there were high agreement about financial risk mitigation with a mean of 4.01, a standard deviation of 0.71, and an agreement rate of 80.21%. Financial sustainability was also at a positive level (3.94; SD=0.71; agreement rate=78.85%). The correlation results showed that there was a high degree of positive and statistically significant correlation between financial risk mitigation and financial sustainability (r = 0.804, p = 0.000). The same results were obtained when using the SmartPLS path analysis, which also showed a positive significant effect of financial risk mitigation on financial sustainability (β = 0.562, p = 0.000). The results of regression analysis indicated that financial risk mitigation explained 64.6% of the variation in financial sustainability, and had a significant coefficient of impact (B = 0.853, t = 14.491, p = 0.000). The results indicate that good risk management practices, including liquidity management, operational control, hedging, internal audit, employee training, and capital adequacy monitoring, plays an important role in improving the financial sustainability, stability, and resilience of private banks.