Impact on Bank-Specific and Macroeconomic Factors on Liquidity of Domestic and Foreign Commercial Banks in Malaysia

Abstract

The objective of this paper is to investigate the impact of bank-specific and macroeconomic factors on the liquidity of commercial banks in Malaysia. The study focuses on a sample of 18 banks, including 10 international banks and 8 local banks, from 2009 to 2020. The research utilizes regression analysis, Diagnostic Checking Test and Pooled Ordinary Least Square, to see how different factors affect liquidity determinants between international and local banks. The results reveal that international banks tend to be more liquid than local banks, and the liquidity determinants differ between the two groups. While certain factors are crucial for local banks, they may not be as significant for foreign banks. For instance, the exchange rate has a significant impact on the liquidity risk of local banks, but not on international banks. However, some determinants, such as bank size, leverage, and financial crisis, are found to be significant for both international and local banks. Interestingly, the study also highlights that the liquidity risk posed by international banks remains unaffected by global financial crises., whereas local banks in Malaysia are negatively impacted. This suggests that local banks are less resilient than international banks during financial crises. The findings of this study have practical implications, as they can assist banks in formulating effective liquidity strategies and providing insights to the government for policy interventions to enhance the chances of bank survival, particularly during financial crises.