Determinants of Bank Liquidity: Empirical Evidence from Listed Commercial Banks with SBP

Abstract

This study empirically investigates the determinants of commercial banks liquidity; we took a sample size of 31 listed commercial banks with state bank of Pakistan from a population of 37 commercial banks. A convenience sampling method is used to collect data for the period of 10 years, starting from 2005 up to 2014.The stock approach method was used to measure the bank liquidity. The results of balance fixed effect model showed that the independent variables like CAP and GDP have positive and significant impact on bank liquidity while NPL and BS have statistically significant and negative impact on bank liquidity. Subsequently we found that ROE and INF have statistically insignificant but positive relationship with bank liquidity. Moreover, commercial banks in Pakistan should not only be focused about bank specific variables, but they must consider both the internal and external factors together in developing strategies to improve the liquidity position of the banks. The results of this study are important for credit manger, regulators and academician, in the sense, that they can facilitate commercial banks in efficient resource allocation.

Keywords: Bank liquidity, Liquidity risk, Financial Institutions, State Bank of Pakistan (SBP), Bank for international settlement (BIS)