Impact of financial flexibility on performance and credit risk of commercial banks in the emerging market

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Abstract

This study aims to examine the impact of financial flexibility on performant credit risk. Study utilizes a dataset for a prolonged period from 2010–2023 and adopts a panel data analysis process to evaluate the association among financial flexibility, performance and credit risk in Iraq as one of the emerging markets. Outcomes specify that innovative phases of financial flexibility positively affect the profitability of banks, as they permit banks to lead commercial conditions and manage threats through premeditated variations in their financial operations. Moreover, the study advocates that financial flexibility has a vital role in diminishing risk in front of commercial banks, as financially flexibile banks diminish variations in revenue and have more potential in management of non-performing loans (NPLs), which increases their stability and generally under unstable economic circumstances. Outcomes of this study confirm the importance of improving financial flexibility within the banking sector as a means of refining effectiveness and mitigating risks. The perceptions of policy makers and bank managers enable them to develop capital management strategies which use multiple funding sources to boost financial flexibility for operational risk management.

Keywords: Financial Flexibility, Iraqi Banks, Profitability, Risk, Panel Data Analysis

Authors’ individual contribution: Conceptualization — H.M.J. and N.H.M.A.-H.; Methodology — H.M.J., H.K.A., N.S.A., and N.H.M.A.-H.; Software — H.K.A., N.S.A., and N.H.M.A.-H.; Validation — H.M.J., H.K.A., and N.H.M.A.-H.; Formal Analysis — H.M.J. and N.H.M.A.-H.; Investigation — H.M.J.; Data Curation — H.M.J. & N.H.M.A.-H.; Writing — Original Draft — H.M.J. & N.H.M.A.-H.; Writing — Review & Editing — H.K.A., N.S.A., and N.H.M.A.-H.; Supervision — H.M.J.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G21, G32, O16

Received: 28.07.2025
Revised: 31.10.2025; 11.11.2025; 23.12.2025
Accepted: 08.01.2026
Published online: 12.01.2026

How to cite this paper: Jadah, H. M., Ashour, H. K., Alramadan, N. S., & Al-Husainy, N. H. M. (2026). Impact of financial flexibility on performance and credit risk of commercial banks in the emerging market. Risk Governance and Control: Financial Markets & Institutions, 16(1), 47–57. https://doi.org/10.22495/rgcv16i1p4