The Impact of Macroeconomic and Bank Specific Factors on Banking Distress in ASEAN Region

Yap, Jee Yung (2024) The Impact of Macroeconomic and Bank Specific Factors on Banking Distress in ASEAN Region. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

This paper aims to investigates the determinants of commercial bank liquidity across ASEAN countries, with a focus on Malaysia, Singapore, Thailand, Indonesia, the Philippines, and Vietnam. The study employs a Panel Least Square analysis of both bank-specific factors, such as bank size and deposit ratios, and macroeconomic influences, including interest rates and foreign direct investment (FDI), to assess their impacts on liquidity. Empirical findings indicate that larger bank sizes and higher deposit ratios generally correlate with reduced liquidity, suggesting operational and regulatory complexities that hinder liquidity management. In contrast, higher interest rates tend to enhance bank liquidity by boosting interest income on assets. Notably, macroeconomic factors generally show minimal impact on liquidity, except for interest rates, which have a significant positive effect in several countries. The study also uncovers that FDI has a notable positive impact on liquidity specifically in the Philippines, highlighting the sector-specific benefits of foreign investments. The research outlines crucial implications for bank management strategies, including the need for strategic growth planning and risk management frameworks to mitigate liquidity risks associated with larger bank sizes and high deposit ratios. For policymakers, the findings suggest the importance of setting liquidity management regulations and preparing for potential financial instabilities. Future research should explore the specific thresholds at which bank size and deposits begin to negatively affect liquidity and expand the dataset to include more comprehensive financial data across all ASEAN countries.