Bank-Specific and Macroeconomic Determinants of Banks Liquidity in Southeast Asia

Teoh, Shin Chi (2022) Bank-Specific and Macroeconomic Determinants of Banks Liquidity in Southeast Asia. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

This study is a maiden attempt to determine the bank-specific and macroeconomic variables influencing the determinants of bank liquidity in Southeast Asia. The study covers the commercial banks in Malaysia, Indonesia, Philippines, Thailand, and Vietnam from 2011 to 2020. Total loans over total deposits (LIQ) proxy as measured of liquidity explained variable. Capital Adequacy Ratio (CAR), Deposits to Total Assets (DEP), Return on Assets (ROA), Total Loans to Total Assets (TLA) are proxied as bank-specific determinants. Gross Domestic Product (GDP), Consumer Price Index (CPI), Unemployment Rate (UNEM) and Political Stability Index (POL) are proxied as macroeconomic variables. Prior research had yielded inconsistent results on similar factors, which sparked the interest of researchers. In order to assess the impact of determinants on commercial bank liquidity, this study adds factor of the political stability index, which have not been studied in any literature before, to the existing variables. The results of panel regression showed that explanatory variables such as Deposits to total assets, Total loans to total assets are the major factors determining the liquidity of commercial banks in Southeast Asia. The bank-specific factors are main determinants of bank liquidity rather than macroeconomic factors for Philippines and Vietnam. Same findings apply to Malaysia and Thailand that the banks’ liquidity is mainly determine by bank-specific factors and GDP. Inflation and unemployment only significant impact the contributing factor of banks’ liquidity in Indonesia. Furthermore, commercial banks in Indonesia must examine both internal and external issues while designing plans to strengthen the liquidity situation of their banks. Political stability index indicated that insignificant impact applies in Southeast Asia. Following these findings, bank regulatory authorities may find some useful suggestions for enhancing and the resilience and stability of the banking sector in the country. A significant knowledge gap in the existing literature was filled by this study, which provided new insight into bank liquidity in Southeast Asia