The Impact of Internal Banking Governance Mechanisms on Reducing Operational Risks in Commercial Banks: A Field Study on Libyan Commercial Banks

Abstract

This study aims to investigate the impact of internal banking governance mechanisms—specifically the board of directors, audit committees, and internal audit—on mitigating operational risks within Libyan commercial banks. Adopting a deductive-inductive approach, the study utilized a questionnaire distributed to a stratified random sample of 159 employees across five major Libyan commercial banks. Statistical analysis was performed using descriptive and inferential methods, including multiple regression and stepwise regression. The findings indicate a statistically significant collective impact of internal governance mechanisms on reducing operational risks. Specifically, internal audit was found to have the most substantial effect, followed by the role of audit committees, while the board of directors showed no statistically significant impact on operational risk mitigation. The study concludes that while internal governance mechanisms are generally robust, there is an urgent need to strengthen the internal audit function and audit committees. The study recommends enhancing the professional training of internal auditors, providing audit committees with greater autonomy and resources, and reassessing the strategic role of the board of directors to better align with contemporary governance standards, ultimately fostering institutional stability in the Libyan banking sector.