Impact of Macroeconomic and Bank Specific Factors on Liquidity of Commercial Banks in Pakistan
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Date
2019-10-19
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UMT.Lahore
Abstract
Financial system stability has been gaining crucial consideration on both, national and
international level in terms of structural, institutional and macroeconomic aspects. The
money as a medium of exchange and bank as an intermediary cannot be comprehend by
visualizing a world without them. It can be observed that old modalities of banking
system have been replaced by many innovations in the new millennium. In order to
evaluate the soundness and steadiness of a banking sector, it is considered imperative to
associate banking system with its liquidity position. Therefore, this study is conducted to
determine the influence of bank specific and macro environmental variables on the
liquidity of commercial banks in Pakistan. The data is taken from 20 commercial banks
over the period 2009 to 2018. Different panel data regression models are used. The study
found that leverage (LEV) and capital adequacy ratio (CAR) have negative but
significant impact on the liquidity of the banks. Moreover, exchange rate (FER) found to
have positive and significant effect on the liquidity of the commercial banks.
Furthermore, there is insignificant relation of asset size (SIZE), government deficit
financing (GDF) and inflation rate (INF) with the bank‟s liquidity.