Impact of Liquidity Risk on Banks (A Case Study of Punjab, Pakistan)

Abstract

The main reason or purpose of this research is to find out the impact of liquidity risk on banking sector. Bank and risk are two things that cannot be separated from each other. One of the critical risk is liquidity risk that caused by bank disabilities on meeting their maturity dates of depositors. Therefore it needs further observations to control their liquidity risk. In this study simple linear regression is used through SPSS to investigate the influence between dependent and independent variable such as Return on Equity, Return on Asset, Current Ratio, Capital Adequacy Ratio, belongs to liquidity risk on banking industry. The selection of samples uses purposive sampling method. The study is based on secondary data in a period of 20 years, i.e. 1991-2011. The statistical  analysis  of  secondary  data  has  been  divided  into  three,  which  are  descriptive, regression and hypothesis testing. The study finds negatively and significant influence of Capital Adequacy Ratio and Return on Equity to liquidity risk, while Return on Asset and Current Ratio have positively and significant effect. Return on Asset and Current Ratio influences to liquidity risk is positive and in same direction (upward) while Return on Equity and, Capital Adequacy Ratio influences to the liquidity risk is negatively and in opposite direction (downward).Return on Equity and Capital Adequacy Ratio Increases the Liquidity Risk will decreases, while Return on Asset and Current Ratio increases then Liquidity Risk will also increases.

Keyword: Liquidity Risk. Return on asset (ROA). Return on equity (ROE). Current Ratio (CR), Capital Adequacy Ratio (CAR)