##plugins.themes.bootstrap3.article.main##

  •   Faruque Ahamed

Abstract

The study examines the bank-specific and external factors that affect the liquidity risk in commercial banks in Bangladesh. The study has been conducted using 23 banks data from 2005-2018, and panel data is used to conduct the regression analysis. Among the bank-specific factors, asset size has a negative relationship with liquidity risk. The larger the bank size, the better the liquidity position and the lower the liquidity risk. Return on equity and capital adequacy ratio has a positive but insignificant relationship with the liquidity risks. In the case of macroeconomic factors, inflation negatively affects the liquidity risks, whereas GDP and domestic credit positively affect. Private and public sector credits increase the investments, which in turn fuel GDP growth. Growth in domestic credit reduces liquidity and may create insolvency. The loan outstanding to asset ratio is positively related to the liquidity risk of the banks. Banks usually increase the loan/advance disbursement to increase profitability, which dries out liquidity and enhances liquidity risk. The study concludes that although several factors are found insignificant yet have positive/negative relation, the banks must carefully evaluate the factors to avoid a future liquidity crisis. 

Keywords: Bangladesh, Banks, liquidity risk, profitability

References

Abreu M. and V. Mendes. 2002. “Commercial bank interest margins and profitability: evidence from E.U countries”, Porto Working paper series.

Ahmed, N., Ahmed, Z., & Naqvi, I. (2011). Liquidity Risk and Islamic Banks: Evidence from Pakistan. Interdisciplinary Journal of Research in Business, 1(9), 99-102

Ahamed, F. (2021). Macroeconomic Impact of Covid-19: A case study on Bangladesh. IOSR Journal of Economics and Finance (IOSR-JEF), 12(1), 2021, pp. 24-29.

Aiyar, S. (2012). From financial crisis to great recession: The role of globalized banks. American Economic Review, 102(3), 225-30.

Akhtar, M. F., Ali, K., & Sadaqat, S. (2011). Liquidity risk management: a comparative study between conventional and Islamic banks of Pakistan. Interdisciplinary journal of research in business, 1(1), 35-44.

Alison, P.D. (2005), “Fixed Effects Regression Methods for Longitudinal Data: Using SAS,” SAS Institute.

Anam, S. et.al. (2012). Liquidity Risk Management: A Comparative Study Between Conventional and Islamic Banks of Bangladesh. Research Journal Economics, Business, ICT. Vol. 5: 1-5

Bonfim, D., Barros, P. P., Kim, M., & Martins, N. C. (2011). Estimating the impact of bank mergers: an application to the Portuguese banking system. Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies.

Bourke, P. (1989). Concentration and other determinants of bank profitability in Europe, North America and Australia. Journal of Banking & Finance, 13(1), 65-79.

Choon, L. K., Hooi, L. Y., Murthi, L., Yi, T. S., &Shven, T. Y. (2013). The determinants influencing liquidity of Malaysia commercial banks, and its implication for relevant bodies: evidence from 15 malaysian commercial banks (Honours Unpublished Thesis).UniversitiTunku Abdul Rahman, Kampar.

Cucinelli, D. (2013). The determinants of bank liquidity risk within the context of euro area. Interdisciplinary Journal of Research in Business, 2(10), 51-64.

De Jonghe, O. (2010). Back to the basics in banking? A micro-analysis of banking system stability. Journal of financial intermediation, 19(3), 387-417.

Demirgüç-Kunt, A., & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review, 13(2), 379-408.

Diamond, D. W., & Dybvig, P. H. (1983). Bank runs, deposit insurance, and liquidity. Journal of political economy, 91(3), 401-419.

Dinç, I. S. (2005). Politicians and banks: Political influences on government-owned banks in emerging markets. Journal of financial economics, 77(2), 453-479.

García-Herrero, A., Gavilá, S., & Santabárbara, D. (2009). What explains the low profitability of Chinese banks?. Journal of Banking & Finance, 33(11), 2080-2092.

Hossain, M. S., & Ahamed, F. (2015). Determinants of bank profitability: A study on the banking sector of Bangladesh. Journal of Finance and Banking, 13(1), 43-57.

Hudgins, C., Rose, S., Fifield, P. Y., & Arnault, S. (2013). Navigating the legal and ethical foundations of informed consent and confidentiality in integrated primary care. Families, Systems, & Health, 31(1), 9.

Ismal, R. (2010). Assessment of liquidity management in Islamic banking industry. International Journal of Islamic and Middle Eastern Finance and Management.

Isshaq, Z., & Bokpin, G. A. (2009). Corporate liquidity management of listed firms in Ghana. Asia-Pacific Journal of Business Administration.

Iqbal, A. (2012). Liquidity risk management: a comparative study between conventional and Islamic banks of Pakistan. Global journal of management and business research, 12(5).

Ivashina, V., and Scharfstein, D, Bank lending during the financial crisis of 2008, Journal of Financial Economics, 97, (2010), 319- 338.

Jedidia, K. B., & Hamza, H. (2015). Determinants of liquidity risk in Islamic banks: A panel study. Islamic Management and Business, 2(2), 137-146.

Kurnia, H. P., & Muharam, H. (2012). The Influence of Fundamental Factors to Liquidity Risk on Banking Industry (Case Study between Conventional and Islamic Banks in Indonesia) (Doctoral dissertation, Fakultas Ekonomika dan Bisnis).

Lucchetta, M. (2007). What do data say about monetary policy, bank liquidity and bank risk taking?. Economic notes, 36(2), 189-203.

Molyneux, P., & Thornton, J. (1992). Determinants of European bank profitability: A note. Journal of banking & Finance, 16(6), 1173-1178.

Mugenyah, L. O. (2015). Determinants of liquidity risk of commercial banks in Kenya (Doctoral dissertation, University of Nairobi).

Muhammad, H., Tariq, M., Tahir, A., & Momeneen, W. (2009). Comparative Performance study of conventional and Islamic Banking in Pakistan. FAST School of Business National University of Computer & Emerging Sciences.

Ojo, M. (2010). "Risk management by the Basel Committee: Evaluating progress made from the 1988 Basel Accord to recent developments". Journal of Financial Regulation and Compliance, 18, 305-315.

Pasiouras, F., & Kosmidou, K. (2007). Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in International Business and Finance, 21(2), 222-237.

Ramzan, M., & Zafar, M. I. (2014), Liquidity Risk Management in Islamic Banks: A Study of Islamic Banks of Pakistan,

Rauch C., Steffen, S., Hackethal, A. and M. Tyrell, 2011, Determinants of Bank Liquidity Creation, Working Paper. Interdisciplinary Journal of Contemporary Research in Business, 5 (12), 199-215.

Rhoades, S. A. (1985). Market share as a source of market power: Implications and some evidence. Journal of Economics and Business, 37(4), 343-363.

Singh, A., & Sharma, A. K. (2016). An empirical analysis of macroeconomic and bank-specific factors affecting liquidity of Indian banks. Future Business Journal, 2(1), 40-53.

Sopan, J., & Dutta, A. (2018). Determinants of liquidity risk in Indian banks: A panel data analysis. Asian Journal of Research in Banking and Finance, 8(6), 47-59.

Sudirman, I. (2015, March). Determinants of bank liquidity in Indonesia: Dynamic panel data analysis. 11th International Annual Symposium on Management, The Singhasari Resort, Batu, Malang, Indonesia. DOI10.2139/ssrn.2583985

Sukmana, R., & Suryaningtyas, S. (2016). Determinants of liquidity risk in Indonesian Islamic and conventional banks. [1] Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah, 8(2), 187-200.

Vento, Gianfranco A., and Pasquale La Ganga. "Bank liquidity risk management and supervision: which lessons from recent market turmoil." Journal of Money, Investment and Banking 10.10 (2009): 78-125.

Vodova, P. (2012). Determinants of commercial banks' liquidity in Poland. ratio, 50(2).

Wójcik-Mazur, A., & Szajt, M. (2015). Determinants of liquidity risk in commercial banks in the European Union. Argumenta Oeconomica, 2(35), 25-48.

Waemustafa, W., & Sukri, S. (2016). Systematic and unsystematic risk determinants of liquidity risk between Islamic and conventional banks. International Journal of Economics and Financial Issues, 6(4), 1321-1327.

Waemustafa, W., & Sukri, S. (2016). Systematic and unsystematic risk determinants of liquidity risk between Islamic and conventional banks. International Journal of Economics and Financial Issues, 6(4), 1321-1327.

Zaghdoudi, K., & Hakimi, A. (2017). The determinants of liquidity risk: Evidence from Tunisian banks. Journal of Applied Finance and Banking, 7(2), 71.

Zaghdoudi, K., & Hakimi, A. (2017). The determinants of liquidity risk: Evidence from Tunisian banks. Journal of Applied Finance and Banking, 7(2), 71.

Zhang, Q., Çaǧın, T., Van Duin, A., Goddard III, W. A., Qi, Y., & Hector Jr, L. G. (2004). Adhesion and nonwetting-wetting transition in the Al/α− Al 2 O 3 interface. Physical Review B, 69(4), 045423.

Downloads

Download data is not yet available.

##plugins.themes.bootstrap3.article.details##

How to Cite
Ahamed, F. (2021). Determinants of Liquidity Risk in the Commercial Banks in Bangladesh. European Journal of Business and Management Research, 6(1), 164-169. https://doi.org/10.24018/ejbmr.2021.6.1.729