Exploring the Liquidity Risk Factors in the Balkan Region Banking System

Abstract

Liquidity as a field of study has received considerable attention from various researchers over the last few years. We have conducted this research in order to identify the factors affecting the liquidity of the banking system of nine Balkan countries, specifically Albania,

Firm-specific and macroeconomic determinants of commercial banks liquidity in Ethiopia: Panel data approach

“…The deposit has a positive and statistically significant effect on the liquidity of banks (0.1011), which shows that a percentage change in deposit leads to a 0.1011% increase in bank liquidity in the short run at a 5% significance level, on average ceteris paribus. The result is in line with the prior expectation and the findings of Al-Homaidi et al (2019), Mazreku et al (2019), Sopan andDutta (2018), andSingh andSharma (2016) who revealed that deposit had a positive effect on bank liquidity; i.e. as demand deposits increase, liquid asset holdings also increased.…”

“…This implies that an increase in interest margin stimulates banks to focus more on lending activity and as a result, the share of liquid assets is decreasing (Al-Homaidi et al, 2019;Tibebu, 2019;Ahokpossi, 2013;Vodova, 2012). Conversely, (Mazreku et al, 2019;Malik & Rafique, 2013) argued, the spread has a positive effect on the liquidity risk of banks.…”

“…Deposit highly affecting the position of the banks' liquidity as the demand for liquidity may arrive at an inconvenient time and force the fire sale of illiquid assets in the absence of enough deposit (Assfaw (2019). A study conducted by Mazreku et al (2019), Al-Homaidi et al (2019), and Singh and Sharma (2016) revealed that deposits had a positive effect on banks' liquidity; i.e. as demand deposits increase, liquid assets holdings also increase.…”

“…When the economy is at the boom, banks became optimistic and upsurge their long-term investment and reducing their holding of liquid assets whereas in the period of recession the reverse is true (Assfaw, 2019). But, sometimes banks prefer high liquidity due to lower confidence in reaping profits during an economic downturn, which means a real gross domestic product has a significant positive impact on a bank's liquidity (Mazreku et al, 2019;Boadi et al, 2016;Chagwiza, 2014;Bunda & Desquilbet, 2008). On the other hand, the theory of bank liquidity and financial fragility stated that when the economy is at the boom, banks became optimistic and upsurge their long-term investment and reducing their holding of liquid assets while in the period of recession the reverse is true.…”

Firm-Specific and Macroeconomic Determinants of Banks Liquidity: Empirical Investigation from Ethiopian Private Commercial Banks

“…This means, if the majority of the depositors of the bank are business firms, corporations, schools, college etc., the bank will have to maintain high liquidity because of unpredictable. This is similar to the findings of Shah, Khan, Shah, and Tahir (2018), Ibish Mazreku, Fisnik Morina, Valdrin Misiri, Jonathan V. Spiteri (2019) and Laštůvková (2017). Conversely, if the deposits are mostly made by individual customers and are of personal nature, the bank can operate with less liquid cash.…”