More Credits, Less Cash: A Panel Cointegration Approach

Abstract

In this study, the long-run relation among credit expansion and liquidity risk was analyzed by using data of 20 banks in Turkish banking sector for the period 2014.Q1-2017.Q4. In the analysis, dynamic panel cointegration methodology which depends on cross-sectional dependence and homogeneity was adopted in order to determine whether there is a long-run relation between variables. As a result of the cointegration analysis, a long-run relation was found between liquidity risk and credit expansion. Also, the result indicates that credit expansion positively affects liquidity risk. This result suggests that the banks may constrain their credit growth in the long term in order to decrease liquidity risk.