The Liquidity-Profitability Nexus in Commercial Banks: A Panel Data Study of Selected GCC Countries

Abstract

This study will investigate the liquidity–profitability dynamics in 20 commercial banks across the Gulf Cooperation Council (GCC) over the period 2014–2023 using random effect analysis from panel data models. The analysis evaluates whether liquidity measured by liquid assets to deposits, liquid assets to total assets, and loan to deposit ratios significantly affect profitability, which is captured by return on assets (ROA). Control variables such as bank size, Inflation and Annual GDP growth are also included in the analysis to ensure that the estimated impact of liquidity and bank specific variables is not biased by broader economic conditions. Growth rate of GDP was found to has a positive and significant effect on profitability of banks at the 5% level, and loans-to-assets (LTA) and deposits-to-assets (DTA) have a positive influence on profitability at the 10% level.

Keywords: Banks, Liquidity, Panel Data, Profitability.

DOI: 10.7176/JESD/16-7-03

Publication date: October 31^st 2025