Impacts of Bank Specific and Macroeconomic Determinants on Bank Liquidity: Empirical Evidence from Bangladesh.

Abstract

This study endeavors to determine the determinants that have an influence on bank liquidity over the tenure from 2008 to 2018. To achieve this purpose, some internal and external factors are identified and divided into bank-specific and macroeconomic determinants, respectively. Bank liquidity is measured as a function of bank-specific and macroeconomic factors using prominent liquidity indicators such as current ratio. Using multiple regression analysis, the results show that return on assets, non-performing loan, debt to assets ratio, and capital adequacy ratio have a significant impact on bank liquidity. However, macroeconomic factors such as annual gross domestic product growth rate, annual inflation rate, and annual unemployment rate have no significant impact separately on bank liquidity, but they have a unified impact on bank liquidity as they are non-diversified factors. So, the bank management body should concern mostly with internal determinants than external factors to maintain liquidity balance. Because internal factors are controllable but macroeconomic factors are equally influential for every banking institution and, they are non-diversifiable in nature. So, the results suggest that concern return on assets, non-performing loan, debt to asset ratio, and capital adequacy ratio will help improve liquidity management.