Bank Liquidity Research Articles

Bank liquidity supply and corporate investment during the 2008–2009 financial crisis

Bank liquidity supply and corporate investment during the 2008–2009 financial crisis

LIQUIDITY DETERMINANTS OF SHARIA COMMERCIAL BANKS

This study aims to analyze the determination of the financing to deposit ratio (FDR), capital adequacy ratio (CAR), and non-performing financing ratio (NPF) on the liquidity of sharia commercial banks from 2018 to 2023. The focus of the sample for this study is sharia commercial banks registered in Financial Services Authority (OJK), through the application of quantitative methodology. This research uses monthly financial reports of Islamic commercial banks from 2018 to 2023 as a sample. The sampling technique applied was purposive sampling, while technical multiple linear regression analysis using SPSS 16.0 was applied to assess the impact of each variable on liquidity. The conclusion obtained from this study states that in that period, NPF had a significant impact on the liquidity of sharia commercial banks. However, apart from that, the FDR and CAR did not show a significant effect on the liquidity of Islamic commercial banks in that period.

Can stock market always act as a ‘barometer’ for industrial system? An analysis on the connectedness between production and return spillover networks

ABSTRACT This study investigates whether the stock market consistently acts as a ‘barometer’ for the industrial system by employing the complex networks theory. We propose a network of production spillovers for the system and a network of return spillovers for the market and then calculate network similarity to explore the connectedness between them. We acquire the following discoveries. On the one hand, there is a weak connectedness between the network structure of production spillovers and that of return spillovers, with the former and latter showing ‘core-periphery’ and ‘uniformity’ associations, respectively; meanwhile, the effects of production shocks on the system are symmetrical, whereas those of return impacts on the market are asymmetrical, suggesting a weak connectedness between them. These confirm that the ‘barometer’ function of the market exhibits low effectiveness. On the other hand, the major events with a direct impact on the production of enterprises, e.g. Covid-19, US–China Trade Friction, Bank Liquidity Crisis and Strict Financial Regulatory Policies, lead to an increase in the connectedness between the system and the market; conversely, those causing indirect shocks through financing channels, like Stock Market Crash, result in a decrease. These verify that the ‘barometer’ function strengthens amidst some major events while weakens during others.

The Function of the Deposit Insurance Corporation (LPS) as a Legal Protection Strategy for Customer Deposits Due to Bank Liquidation

This research aims to explore the role of the Deposit Insurance Corporation (LPS) in protecting customers when banks fail. The research methods used include policy analysis, case studies of failed banks, and reviews of related laws. It is hoped that the research results will provide a deeper understanding of the effectiveness of the legal protection provided by LPS to customers in the context of bank failures and the related compensation claims process. The Deposit Insurance Corporation (LPS) has a crucial role in protecting customer deposits when banks experience liquidation. In this context, LPS functions as a legal protection strategy for customer deposits held in banks. This action is important to maintain public confidence in banking amidst economic uncertainty. In response to the 1998 monetary crisis, the Indonesian government issued a policy of guaranteeing bank payments, including public deposits, through LPS. The importance of LPS is revealed when banks experience failures that have the potential to threaten the security of customer funds. In this situation, LPS guarantees the customer's refund up to a certain limit, providing the necessary financial protection. This creates a sense of security for customers and promotes banking system stability. With LPS, customers can be assured that their funds are safe even if unexpected events occur in the banking world. The role of LPS as a deposit insurance institution is inherent in the government's efforts to regulate and supervise the financial sector. LPS plays a role as the front guard in protecting customer interests, maintaining financial system stability, and preventing potential losses that could arise due to the possibility of bank failure.

Bank Liquidity and Financial Performance of Deposit Money Banks in Nigeria

Due to the importance of the deposit money bank to the Nigerian Economy that liquidity level and status of this sector is not only important to the investors, the bank itself but also to the economy at large. Based on this challenge this study examines into the impact of bank liquidity on financial performance of deposit money banks in Nigeria. The secondary data was sourced from the audited financial statement of deposit money banks from 2018 to 2022. The study employed the static panel regression analysis to determine the relationship between liquidity ratio, loan-to-deposit ratio and bank size and financial performance measures. The findings from model one reveals that loan-to-deposit ratio and liquidity ratio has negative and positive significant effect on earnings per share, while loan-to-deposit ratio, liquidity ratio and bank size has negative significant effect on net interest margin. It is therefore recommended that deposit money banks should carefully manage their loan-to-deposit ratios to avoid excessive lending that could negatively impact earnings per share. Institutions should focus on improving their liquidity ratios by maintaining sufficient liquid assets to meet short-term obligations. Enhancing liquidity management practices can positively affect earnings per share, boosting overall financial performance and shareholder value. Regularly monitoring and adjusting these ratios will ensure a balanced approach to lending and liquidity, supporting sustainable growth and profitability. Additionally, financial institutions should provide ongoing training and resources to their teams to strengthen risk management and financial planning.

Scope and limits of bank liquidity creation

Scope and limits of bank liquidity creation

Reform of Mortgage Execution Through Auction in the Context of Seized Collateral (AYDA) by Banks

This research aims to analyze the management of Seized Collateral (AYDA) and auction procedures applied by banks in dealing with non-performing loans. Through a normative juridical approach, this study explores the impact of AYDA on market value and bank liquidity, as well as the challenges faced in the auction execution, including low buyer participation and bureaucratic constraints. The results show that effective management of AYDA can reduce the level of Non-Performing Loan (NPL), while optimal auction procedures can maximize collateral value and minimize the risk of losses. Policy recommendations are proposed to enhance the effectiveness of AYDA management and formulate more efficient auction procedures, with the hope of contributing positively to bank financial stability and the economy.

The Influence of Loan to Deposit Ratio (LDR) and Operating Costs on Operating Income (BOPO) on Return on Assets (ROA)

This study examines the influence of LDR and BOPO on ROA at a bank in Bandung. Return on Assets (ROA) highlights the Company's ability to produce revenue from its operations by efficiently using its assets. Factors affecting Return on Assets (ROA) encompass the Loan to Deposit Ratio (LDR) and the Operating Expenses to Operating Income Ratio (BOPO), all of which impact ROA. The study's population consisted of four years of financial records from a bank in Bandung, encompassing all four quarters. The sample was selected using the time series approach, consisting of 16 financial reports from 2018 to 2021. The applied data testing method was multiple linear regression, utilizing a significance level of 5% alpha. The findings indicated that LDR did not exert a significant influence on ROA. Despite LDR exhibiting a positive coefficient, the significance value is above the conventional threshold, suggesting that the impact of LDR on ROA is minimal and statistically insignificant. Conversely, BOPO substantially impacts ROA, with a negative coefficient and a minimal significance value. The rise in BOPO, signifying diminished operational efficiency, adversely affects ROA, suggesting that elevated operating costs diminish the bank's profitability. Subsequent research indicated that the regression model accounts for most of the variation in ROA, demonstrating a robust association between LDR and BOPO with ROA. It is advised that the Company's management concentrate on optimizing operating cost management to enhance ROA. Implementable strategies encompass conducting frequent audits to identify and mitigate waste and enhancing the efficiency of operational procedures. Despite LDR not demonstrating a significant impact, it is crucial to monitor this ratio to ensure the bank's liquidity and financial stability. This study also advocates for additional research to investigate other variables that may influence ROA, along with a comprehensive examination of operational elements to enhance profitability.

Liquidity in State-owned Banks: what matters the most

Liquidity in State-owned Banks: what matters the most

The drivers of liquidity risk in the GCC dual banking sector: the impact of the bank’s business model

Purpose Considering the influence of the bank’s business model, this study aims to explore the drivers of liquidity risk in the dual banking sector of the Gulf Cooperation Council (GCC) using the two new liquidity requirements of Basel III, Net Stable Funding Ratio and Liquidity Coverage Ratio, as indicators of liquidity risk. Design/methodology/approach For 61 GCC banks between 2018 and 2022, this study applies the random effects model with an interaction dummy variable technique. Findings Islamic banks in the GCC region tend to have a significantly lower level of Basel III liquidity requirements, meaning that they are struggling to meet the new Basel III liquidity requirements as they lack an adequate liquidity risk management framework. The liquidity of GCC banks decreases with size; this relationship is linear for conventional GCC banks but not linear for Islamic banks. Finally, the COVID-19 epidemic has exacerbated liquidity risk for GCC banks, with Islamic banks appearing to be the most impacted. The findings are robust to alternative variable selections and estimation techniques. Practical implications The findings provide useful insights to improve liquidity risk management practices in the GCC banking system, especially for Islamic banks. Targeted reforms may be needed to further develop Islamic banks’ liquidity tools and optimize their ability to withstand macroeconomic and systemic shocks. Originality/value To the best of the author’s knowledge, no single study considers the new Basel III metrics for bank liquidity or explicitly compares a wide range of liquidity factors for conventional and Islamic banks in the GCC region.

The impact of climate risk on bank profitability through liquidity creation channel: empirical evidence from G7 countries

AbstractThis study investigates the impact of climate change-induced risk on bank profitability in the G7 countries from 2001 to 2022. Using dynamic panel GMM estimation to analyse banking industry data with climate risk factors, we find that climate risk has a negative effect on bank profitability. The study also demonstrates that bank liquidity creation plays a key role in transmitting the adverse impact of climate risk on bank profitability. Additionally, the results of the study are robust and withstand different measures of bank liquidity creation. Furthermore, our empirical findings indicate that the influence of climate risk factors is consistent, even for banks primarily focussed on the insurance business. These findings suggest that policymakers may need to implement climate risk management policies to mitigate the detrimental effects of climate change on the banking sector.

Repo Rate Hike in the Post-Covid Period and Its Impact on the Lending Rate of Banks In India

Introduction: The repo rate is the tool used by the RBI to manage the interest rates and thereby regulate economic growth and inflation. During the COVID-19 pandemic period, the repo rate was reduced to 4% as a support measure to ensure adequate liquidity with the banks and the public in general. However, after the pandemic, the repo rate was increased in quick succession by 250 basis points, lifting it to the level of 6.50%. As and when the policy rate is changed, it is expected that the change in rate is passed through to the market. Taking a cue from the repo rate increase, banks in India have increased interest rates on deposits and lending rates. An increase in the borrowing cost would adversely affect the performance of the borrowers. The Micro, Small, and Medium Enterprises (MSME) sector is among the hardest hit by the rising borrowing costs. This paper reviews the movement of lending rates of banks in the post-pandemic period. Objectives: The primary objective of this paper is to review the movement of lending rates of banks in India in the post-pandemic period. Specifically, it aims to analyze the impact of changes in the repo rate on interest rates for deposits and lending rates, as well as the broader implications for economic growth and sectors like Micro, Small, and Medium Enterprises (MSMEs). Methods: This paper examines the changes in the repo rate implemented by the Reserve Bank of India (RBI) from the pandemic period to the post-pandemic period. It also reviews the corresponding changes in bank interest rates, focusing on how these shifts have affected borrowers, particularly in the MSME sector. Results: During the COVID-19 pandemic, the RBI reduced the repo rate to 4% as a supportive measure to maintain adequate liquidity for banks and the public. In the post-pandemic period, the repo rate was increased by 250 basis points, raising it to 6.50%. Following these policy changes, banks in India raised their deposit and lending interest rates. The resulting increase in borrowing costs has negatively impacted the financial performance of borrowers, especially in the MSME sector, which is highly sensitive to rising borrowing costs. Conclusion: The post-pandemic increase in the repo rate by the RBI has led to higher lending rates in the banking sector, directly impacting borrowers' costs. This has particularly affected the MSME sector, which faces greater financial pressure from increased borrowing costs. The findings highlight the need for careful consideration of the ripple effects of monetary policy adjustments, especially on vulnerable sectors of the economy.

Banking Financial Performance as Influenced by Credit Risk, Liquidity and Bank Size In Conventional Banks Listed On The Indonesian Stock Exchange For The Period 2014 - 2023

This study aims to empirically examine the impact of credit risk, liquidity, and bank size on the financial performance of conventional banks listed on the Indonesia Stock Exchange (IDX) during the period 2014-2023, with a particular focus on the COVID-19 pandemic period. The research variables used include the Non-Performing Loan (NPL) ratio, Loan to Deposit Ratio (LDR), and bank size, while Return on Assets (ROA) is used as a financial performance indicator. This study uses the purposive sampling method to select a sample from 138 banks listed on the IDX, resulting in 9 banks that meet the established criteria. Data analysis was conducted using panel data regression with the Fixed Effect Generalized Least Square (GLS) model to address the issues of autocorrelation and heteroskedasticity found in classical assumptions. The research results show that credit risk (NPL) has a significant negative impact on ROA, while bank size and liquidity (LDR) have a significant positive impact on ROA during the pandemic. These findings highlight the importance of managing credit and liquidity risks as well as optimizing bank size to improve financial performance amid the challenging economic conditions caused by the pandemic. This study also suggests that the financial performance of banks can be more stable if supported by appropriate risk management strategies and good operational efficiency. The limitations of this study include a sample restricted to conventional banks in Indonesia and the specific conditions during the COVID-19 pandemic, which may affect the generalization of the results.

Loan growth drivers in state-owned banks: A fixed effects model approach

Loan growth is a critical driver for economic development, and comprehending the determinants affecting lending in state-owned banks is vital for enhancing financial sector stability and performance. This paper examines the factors that affect loan growth in state-owned banks in Bangladesh. We collected data over a 11-year period from 2012 to 2022. We applied ordinary least square method primarily followed by fixed effect estimation. To check the validity of the regression models of the study, we have considered several diagnostic tests. Our findings indicate that loan growth in state-owned banks is influenced by several industry-dependent variables i.e. size, liquidity, efficiency, non-performing loans, etc. The influence of bank size, income, liquidity, non-performing loan ratio, and cost-to-income ratio is the main emphasis of this study's investigation into the factors influencing bank lending. According to the statistics, there is a significant positive correlation between size and lending. Bank liquidity and lending show a strong negative correlation. The study also found higher lending is associated with higher non-performing loans significantly. The efficiency ratio shows a substantial negative impact on lending. To improve bank performance and stability, policymakers and bank management may benefit greatly from these results. Policymakers need to integrate various macroeconomic and qualitative elements into regulatory frameworks to bolster financial stability while facilitating sustainable loan expansion. Bank management can enhance efficiency by decreasing the cost-to-income ratio and strengthening credit risk management, while utilizing bank size for strategic expansions to increase lending capacity.

News Sentiment and Liquidity Risk Forecasting: Insights from Iranian Banks

This study addresses the critical challenge of predicting liquidity risk in the banking sector, as emphasized by the Basel Committee on Banking Supervision. Liquidity risk serves as a key metric for evaluating a bank’s short-term resilience to liquidity shocks. Despite limited prior research, particularly in anticipating upcoming positions of bank liquidity risk, especially in Iranian banks with high liquidity risk, this study aimed to develop an AI-based model to predict the liquidity coverage ratio (LCR) under Basel III reforms, focusing on its direction (up, down, stable) rather than on exact values, thus distinguishing itself from previous studies. The research objectively explores the influence of external signals, particularly news sentiment, on liquidity prediction, through novel data augmentation, supported by empirical research, as qualitative factors to build a model predicting LCR positions using AI techniques such as deep and convolutional neural networks. Focused on a semi-private Islamic bank in Iran incorporating 4,288,829 Persian economic news articles from 2004 to 2020, this study compared various AI algorithms. It revealed that real-time news content offers valuable insights into impending changes in LCR, particularly in Islamic banks with elevated liquidity risks, achieving a predictive accuracy of 88.6%. This discovery underscores the importance of complementing traditional qualitative metrics with contemporary news sentiments as a signal, particularly when traditional measures require time-consuming data preparation, offering a promising avenue for risk managers seeking more robust liquidity risk forecasts.

The Determinants of Bank’s Liquidity: Comparative Analysis From Global Islamic Banks and Conventional Banks

This study investigates the determinants of bank liquidity in both Islamic and Conventional banks across 15 countries, focusing on key variables such as profitability, capital adequacy, bank size, and credit risk. Utilizing data from 107 Islamic banks and 506 Conventional banks spanning from 2013 to 2022, the analysis reveals significant differences in liquidity management between the two banking systems. The Random Effect Model (REM) was employed based on the Hausman test results to ensure robustness. The findings indicate that profitability negatively impacts liquidity in Islamic banks, likely due to investments in less liquid, Sharia-compliant assets, while it positively influences liquidity in Conventional banks, where profits are often reinvested into liquid assets. Capital adequacy emerges as a crucial determinant of liquidity in both bank types, highlighting the importance of maintaining strong capital buffers. The study also finds that credit risk significantly reduces liquidity in Conventional banks, whereas it has a lesser impact on Islamic banks. These insights contribute to a deeper understanding of liquidity management practices in Islamic and Conventional banks, offering valuable implications for bank managers, policymakers, and regulators.

Research on the Bankruptcy Tendency of the United States Bankrupt Commercial Banks during the 2008 financial crisis

With the rapid development of the financial market, banks are faced with increasingly frequent capital flows and rapidly changing business environment. It is an important prerequisite for commercial banks to control their liquidity risk to deeply study the causes of liquidity risk and clarify its economic consequences. In the financial crisis during 2007-2009, American commercial banks were directly impacted by liquidity risk. The characteristics of their bankrupted banks are of great significance to the study of how to avoid bank liquidity losses. This study found that in aspect of the probability of commercial banks bankruptcy, the larger scale the banks’ current deposit is in the initial stage, the larger rate of the loan is. The larger the loan issuance ratio is in perportion, the worse the liquidity management of commercial banks’ efficiency acts. And other characteristics make the bank's bankruptcy probability greater. This result has reference significance for commercial banks in China.

Risks and Financial Indicators in Managing Bank Liquidity in Islamic Banks: A Case Study of Asia Islamic Bank for Finance and Investment in Iraq

The aims of this study to demonstrate the importance of liquidity indicators and the role of liquidity management in addressing liquidity risk and achieving alignment between the bank's objectives of maximizing profitability, determining an optimal level of liquidity and providing security for depositors and shareholders by following specific strategies and working according to specific mechanisms to achieve harmonization and alignment between its objectives Foremost among them is the forecasting, planning and follow-up of the volume and timing of cash flows, early disclosure of possible deficits and surplus cash balance and planning for investing surplus. In addition to using the financial ratios of the legal reserve, the legal liquidity ratio and the cash balance ratio through which the liquidity risk can be addressed and the bank's objective of securing optimal cash liquidity, maximizing profitability and providing security to the parties dealing with it can be achieved. Liquidity management should also pay attention to creating compatibility, balance and harmonization in the management of assets and liabilities and the role of reserves in securing liquidity.

Bank liquidity creation and solvency risk with moderating role of loan concentration: a comparative study of Islamic and conventional banks in Pakistan and Malaysia

Bank liquidity creation and solvency risk with moderating role of loan concentration: a comparative study of Islamic and conventional banks in Pakistan and Malaysia

Analyzing the liquidity of commercial banks in India: Study on different bankgroups

The present study investigates how macroeconomic and bank-specific determinants affect the liquidity of public, private, and foreign banks in India. Bank liquidity is crucial for maintaining financial stability, supporting economic growth, and preserving public trust in the banking system. Bank liquidity is critically significant for bank success. Since 2008, this study has taken 49 banks for analysis purposes. We have employed the fixed and random effect models to examine the impact of bank-specific and macroeconomic variables on the liquidity of diverse bank groups. The results show that deposits and capital have a positive influence, whereas interest rate, statutory liquidity ratio, and cash reserve ratio negatively influence public, private, and foreign banks. Profitability has an insignificant effect on all types of banks. Gross domestic product has a positive, significant influence on public and private banks, but an insignificant impact on foreign banks. Bank size significantly impacts private banks, whereas it has negligible influence on other banks. The findings can assist bank managers, policymakers, and academics in formulating policies that maintain bank liquidity without incurring any losses or undefined costs. The present research is useful for other countries with a similar economic framework, like India, to improve their bank liquidity structure.