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Commercial Banks Liquidity in Pakistan: Firm Specific and Macroeconomic Factors

Author

Listed:
  • Muhammad Farhan Malik

    (Shaheed Zulfikar Ali Bhutto Institute of Science and Technology, Islamabad (Pakistan))

  • Amir Rafique

    (Shaheed Zulfikar Ali Bhutto Institute of Science and Technology, Islamabad (Pakistan))

Abstract

Achieving the optimum level of liquidity is crucial for every bank. A lot of factors have been examined by number of researchers in this area. This study examines the bank specific and macroeconomic determinants of commercial bank’s liquidity in Pakistan. The sample of the study consists of 26 Pakistani commercial banks. The study period consists of 5 years [2007 to 2011] which also covers the period of the Asian financial crisis 2008. Bank’s liquidity is measured in two ways; one is cash and cash equivalents to total assets (L1) and second is advances net of provisions to total assets (L2). Two models are estimated based on these measures of liquidity. The results of model 1 (L1) indicate that the bank specific fundamentals (NPL and TOA) and monetary policy interest rate positively determine the bank liquidity whereas inflation has a negative impact. Bank liquidity measured by L1 is negatively and significantly affected by the financial crisis. The results of model 2 (L2) indicate that the bank size and monetary policy interest rate positively and significantly determine the bank liquidity.Additionally there is a positive and significant impact of financial crisis on the liquidity of commercial banks measured by L2.

Suggested Citation

  • Muhammad Farhan Malik & Amir Rafique, 2013. "Commercial Banks Liquidity in Pakistan: Firm Specific and Macroeconomic Factors," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 16(48), pages 139-154, June.
    • Handle: RePEc:rej:journl:v:16:y:2013:i:47:p:139-154
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    References listed on IDEAS

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    Cited by:

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    2. Mohammad Sami Ali, 2020. "Evaluating the Effectiveness of the Bird-in-Hand-Dividends Policy in the Stability of Jordanian Listed Banks," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(4), pages 96-110, July.
    3. Chai, Wei Jian, 2019. "The Effects Of Liquidity Risk And Market Risk On Mcdonald’S Corporation Performance From 2014 To 2018," MPRA Paper 97268, University Library of Munich, Germany, revised 15 Nov 2019.

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    More about this item

    Keywords

    Commercial Banks; Determinants of Liquidity; Asian Financial Crisis 2008; Liquidity Risk;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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