FACTORS IMPACTING LIQUIDITY OF BANKS: AN EMPIRICAL STUDY FROM THE BANKING SECTOR IN THE UAE
Keywords:
Liquidity, Idiosyncratic Factors Market Related Factors, Regression Analysis, UAE
Abstract
The primary purpose of this research is to substantiate the factors that impact the liquidity of the banks in the UAE. This research paper is an extension of the thesis that the primary author has undertaken to prove the test of significance and provide concrete evidence that the identified idiosyncratic and market related factors have significant impact on the liquidity risk for the banks in the UAE. The primary author has performed linear regression to identify the relation of the dependent and independent variables and once the test of significance is proved, the factors have been ranked using MURAME approach as part of ultimate thesis research objectives (MURAME approach is not forming part of this research paper). The research paper focusses on top 10 banks in the UAE and the study spans from 2010 to 2019. The study employs idiosyncratic factors like Deposit growth, NPL, CAR, ROA and market factors like GDP, Inflation, Unemployment, Oil prices and studies its relationship on dependent factor i.e., liquidity. Series of diagnostic tests are performed to find the impact of liquidity on idiosyncratic and market related factors.
JEL Classification Codes: E58, G32, G38.
References
Alqemzi, A. A. M., Aziz, N. A. A., Yahaya, S. N., & Husseini, S. A. (2022). Liquidity Factors and Liquidity Risk Management for Financial Performance Improvement in the UAE Islamic Banking System. Journal of Positive School Psychology, 6(3), 4628-4635.
Alzorqan, S. (2014). Bank liquidity risk and performance: an empirical study of the banking system in Jordan. Research Journal of Finance and Accounting, 5(12), 155-164. Retrieved from https://www.iiste.org/Journals/index.php/RJFA/article/view/13583
Bordeleau, É., & Graham, C. (2010). The impact of liquidity on bank profitability (No. 2010-38). Bank of Canada. Retrieved from https://www.bankofcanada.ca/wp-content/uploads/2010/12/wp10-38.pdf
Bourke, P. (1989). Concentration and other determinants of bank profitability in Europe, North America and Australia. Journal of Banking & Finance, 13(1), 65-79. https://doi.org/10.1016/0378-4266(89)90020-4
Brunnermeier, M. K., & Cheridito, P. (2019). Measuring and allocating systemic risk. Risks, 7(2), 46. https://doi.org/10.3390/risks7020046
Çetinkaya, H. (2018). Katılım bankacılığında risk yönetimi: batı akdeniz bölgesinde ampirik bir araştırma. İstanbul: Suleyman Demirel Üniversitesi, Sosyal Bilimler Enstitüsü, Yayımlanmamış Yüksek Lisans Tezi.
Claeys, S., & Vennet, V. R. (2008). Determinants of bank interest margins in Central and Eastern Europe: A comparison with the West. Economic Systems, 32(2), 197-216. https://doi.org/10.1016/j.ecosys.2007.04.001
Chen, Y. K., Shen, C. H., Kao, L., & Yeh, C. Y. (2018). Bank liquidity risk and performance. Review of pacific basin financial markets and policies, 21(01), 1850007. https://doi.org/10.1142/S0219091518500078
Chowdhury, M. M., & Zaman, S. (2018). Effect of liquidity risk on performance of Islamic banks in Bangladesh. IOSR Journal of Economics and Finance, 9(4), 01-09.
Demirgüç-Kunt, A., & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review, 13(2), 379-408. https://doi.org/10.1093/wber/13.2.379
Demirgüç-Kunt, A., Laeven, L., & Levine, R. (2004). Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation. Journal of Money, Credit and Banking, 36(3), 593-622. Retrieved from https://www.jstor.org/stable/3838956
Drehmann, M., & Nikolaou, K. (2013). Funding liquidity risk: definition and measurement. Journal of Banking & Finance, 37(7), 2173-2182. https://doi.org/10.1016/j.jbankfin.2012.01.002
El Mahmah, A., & Trabelsi, M. (2021). Banks’ Performance Amid Oil Price Shocks: Empirical Evidence from GCC Countries, 2002-2017. Retrieved from https://erf.org.eg/publications/banks-performance-amid-oil-price-shocks-empirical-evidence-from-gcc-countries-2002-2017/
El-Chaarani, H. (2019). Determinants of bank liquidity in the Middle East region. El-CHAARANI H.,(2019), Determinants of Bank Liquidity in the Middle East Region, International Review of Management and Marketing, 9(2), 64–75. https://doi.org/10.32479/irmm.7742
Ferrouhi, E. M. (2014). Bank liquidity and financial performance: Evidence from Moroccan banking industry. Business: Theory and Practice, 15(4), 351-361. https://doi.org/10.3846/btp.2014.443
Gafrej, O., & Abbes, M. B. (2017). Liquidity determinants of islamic and conventional banks. Journal of Islamic Banking and Finance–Global Perspective of Islamic Finance, 34(2), 44-61.
Hakimi, A., & Zaghdoudi, K. (2017). Liquidity risk and bank performance: An empirical test for Tunisian banks. Business and Economic Research, 7(1), 46-57. http://dx.doi.org/10.5296/ber.v7i1.10254
Healy, P. M., & Palepu, K. G. (2003). The fall of Enron. Journal of economic perspectives, 17(2), 3-26. Retrieved from https://www.jstor.org/stable/3216854
Kapur, M. (2020). An Empirical Study into Comparing Conventional and Islamic Banks in the UAE. International Journal of Accounting & Finance Review, 5(2), 11-31. https://doi.org/10.46281/ijafr.v5i2.716
Konadu, J. S. (2009). Liquidity and Profitability: Empirical evidence from banks in Ghana. Kwame Nkrumah University of Science and Technology. The Journal of Finance, 52(6), 12-23.
Kosmidou, K., & Zopounidis, C. (2008). Measurement of bank performance in Greece. South-Eastern Europe Journal of Economics, 1(1), 79-95.
Kroll, M., & Chesler, R. (1992). Rationale for using multiple regression analysis with complex interferences. European journal of clinical chemistry and clinical biochemistry, 30(7), 415-424. Retrieved from http://pascal-francis.inist.fr/vibad/index.php?action=getRecordDetail&idt=5625569
Kumar, M., & Yadav, G. C. (2013). Liquidity risk management in bank: a conceptual framework. AIMA journal of management & research, 7(2/4), 0974-497. Retrieved from https://apps.aima.in/ejournal_new/articlesPDF/Manish-Kumar.pdf
Lamberg, S., & Vålming, S. (2009). Impact of Liquidity Management on Profitability: A study of the adaption of liquidity strategies in a financial crisis. Retrieved from http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-30424
Lartey, V.C., Antwi, S., & Boadi, E.K. (2013). The relationship between liquidity and profitability of listed banks in Ghana. International journal of business and social science, 4(3), 48-56. Retrieved from https://ijbssnet.com/journals/Vol_4_No_3_March_2013/5.pdf
Mahmood, H., Khalid, S., Waheed, A., & Arif, M. (2019). Impact of macro specific factor and bank specific factor on bank liquidity using FMOLS approach. Emerging Science Journal, 3(3), 168-178. https://doi.org/10.28991/esj-2019-01179
Massoc, E. (2020). Banks, power, and political institutions: the divergent priorities of European states towards “too-big-to-fail” banks: The cases of competition in retail banking and the banking structural reform. Business and politics, 22(1), 135-160. https://doi.org/10.1017/bap.2019.18
Molyneux, P., & Thornton, J. (1992). Determinants of European bank profitability: A note. Journal of banking & Finance, 16(6), 1173-1178.
Munir, S., Ramzan, M., Rao, Q. I., Ahmad, M., & Raza, A. (2012). Financial Performance Assessment of Banks: A Case of Pakistani Public Sector Banks. International Journal of Business and Social Science, 3(14), 276-283. Retrieved from https://ijbssnet.com/journals/Vol_3_No_14_Special_Issue_July_2012/29.pdf
Murthy, Y., & Sree, R. (2003). A study on financial ratios of major commercial banks. Research Studies, College of Banking & Financial Studies, Sultanate of Oman, 3(2), 490-505. Retrieved from https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=1015238
Musa, H., Musova, Z., Natorin, V., Lazaroiu, G., & Boda, M. M. (2021). Comparison of factors influencing liquidity of European Islamic and conventional banks. Oeconomia Copernicana, 12(2), 375-398. https://doi.org/10.24136/oc.2021.013
Mwangi, G. N. (2012). The effect of credit risk management on the financial performance of commercial banks in Kenya (Doctoral dissertation).
Rahman, A., & Saeed, M. H. (2015). An empirical analysis of liquidity risk and performance in Malaysia Banks. Australian Journal of Basic and Applied Sciences, 9(28), 80-84. Retrieved from http://repo.uum.edu.my/id/eprint/25294/
Rani, D. M., & Zergaw, L. N. (2017). Bank specific, industry specific and macroeconomic determinants of bank profitability in Ethiopia. International Journal of Advanced Research in Management and Social Sciences, 6(3), 74-96. Retrieved from https://indianjournals.com/ijor.aspx?target=ijor:ijarmss&volume=6&issue=3&article=005
Santomero, A. M. (1997). Commercial bank risk management: an analysis of the process. Journal of Financial Services Research, 12(2), 83-115. https://doi.org/10.1023/A:1007971801810
Shapiro, S. S., & Wilk, M. B. (1965). An analysis of variance test for normality (complete samples). Biometrika, 52(3/4), 591-611. https://doi.org/10.2307/2333709
Shen, C. H., Chen, Y. K., Kao, L. F., & Yeh, C. Y. (2009). Bank liquidity risk and performance.(pp. 1_37). Working Paper. Department of Finance, National University of Kaohsiung.
Singh, A., & Sharma, A. K. (2016). An empirical analysis of macroeconomic and bank-specific factors affecting liquidity of Indian banks. Future Business Journal, 2(1), 40-53. https://doi.org/10.1016/j.fbj.2016.01.001
Soula, J. L. (2015). Université De Strasbourg (Doctoral dissertation, Université de Franche-Comté).
Tabash, M. I., & Khan, S. H. (2018). The Impact of Oil Price Volatility, Gross Domestic Product, Foreign Direct Investment on Islamic Banking Investments: An Empirical Evidence of the United Arab Emirates. International Journal of Energy Economics and Policy, 8(5), 306-312. Retrieved from https://www.econjournals.com/index.php/ijeep/article/view/6982
Trenca, I., Petria, N., & Corovei, E. A. (2015). Impact of macroeconomic variables upon the banking system liquidity. Procedia Economics and Finance, 32, 1170-1177. https://doi.org/10.1016/S2212-5671(15)01583-X
Trujillo‐Ponce, A. (2013). What determines the profitability of banks? Evidence from Spain. Accounting & Finance, 53(2), 561-586. https://doi.org/10.1111/j.1467-629X.2011.00466.x
Alzorqan, S. (2014). Bank liquidity risk and performance: an empirical study of the banking system in Jordan. Research Journal of Finance and Accounting, 5(12), 155-164. Retrieved from https://www.iiste.org/Journals/index.php/RJFA/article/view/13583
Bordeleau, É., & Graham, C. (2010). The impact of liquidity on bank profitability (No. 2010-38). Bank of Canada. Retrieved from https://www.bankofcanada.ca/wp-content/uploads/2010/12/wp10-38.pdf
Bourke, P. (1989). Concentration and other determinants of bank profitability in Europe, North America and Australia. Journal of Banking & Finance, 13(1), 65-79. https://doi.org/10.1016/0378-4266(89)90020-4
Brunnermeier, M. K., & Cheridito, P. (2019). Measuring and allocating systemic risk. Risks, 7(2), 46. https://doi.org/10.3390/risks7020046
Çetinkaya, H. (2018). Katılım bankacılığında risk yönetimi: batı akdeniz bölgesinde ampirik bir araştırma. İstanbul: Suleyman Demirel Üniversitesi, Sosyal Bilimler Enstitüsü, Yayımlanmamış Yüksek Lisans Tezi.
Claeys, S., & Vennet, V. R. (2008). Determinants of bank interest margins in Central and Eastern Europe: A comparison with the West. Economic Systems, 32(2), 197-216. https://doi.org/10.1016/j.ecosys.2007.04.001
Chen, Y. K., Shen, C. H., Kao, L., & Yeh, C. Y. (2018). Bank liquidity risk and performance. Review of pacific basin financial markets and policies, 21(01), 1850007. https://doi.org/10.1142/S0219091518500078
Chowdhury, M. M., & Zaman, S. (2018). Effect of liquidity risk on performance of Islamic banks in Bangladesh. IOSR Journal of Economics and Finance, 9(4), 01-09.
Demirgüç-Kunt, A., & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review, 13(2), 379-408. https://doi.org/10.1093/wber/13.2.379
Demirgüç-Kunt, A., Laeven, L., & Levine, R. (2004). Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation. Journal of Money, Credit and Banking, 36(3), 593-622. Retrieved from https://www.jstor.org/stable/3838956
Drehmann, M., & Nikolaou, K. (2013). Funding liquidity risk: definition and measurement. Journal of Banking & Finance, 37(7), 2173-2182. https://doi.org/10.1016/j.jbankfin.2012.01.002
El Mahmah, A., & Trabelsi, M. (2021). Banks’ Performance Amid Oil Price Shocks: Empirical Evidence from GCC Countries, 2002-2017. Retrieved from https://erf.org.eg/publications/banks-performance-amid-oil-price-shocks-empirical-evidence-from-gcc-countries-2002-2017/
El-Chaarani, H. (2019). Determinants of bank liquidity in the Middle East region. El-CHAARANI H.,(2019), Determinants of Bank Liquidity in the Middle East Region, International Review of Management and Marketing, 9(2), 64–75. https://doi.org/10.32479/irmm.7742
Ferrouhi, E. M. (2014). Bank liquidity and financial performance: Evidence from Moroccan banking industry. Business: Theory and Practice, 15(4), 351-361. https://doi.org/10.3846/btp.2014.443
Gafrej, O., & Abbes, M. B. (2017). Liquidity determinants of islamic and conventional banks. Journal of Islamic Banking and Finance–Global Perspective of Islamic Finance, 34(2), 44-61.
Hakimi, A., & Zaghdoudi, K. (2017). Liquidity risk and bank performance: An empirical test for Tunisian banks. Business and Economic Research, 7(1), 46-57. http://dx.doi.org/10.5296/ber.v7i1.10254
Healy, P. M., & Palepu, K. G. (2003). The fall of Enron. Journal of economic perspectives, 17(2), 3-26. Retrieved from https://www.jstor.org/stable/3216854
Kapur, M. (2020). An Empirical Study into Comparing Conventional and Islamic Banks in the UAE. International Journal of Accounting & Finance Review, 5(2), 11-31. https://doi.org/10.46281/ijafr.v5i2.716
Konadu, J. S. (2009). Liquidity and Profitability: Empirical evidence from banks in Ghana. Kwame Nkrumah University of Science and Technology. The Journal of Finance, 52(6), 12-23.
Kosmidou, K., & Zopounidis, C. (2008). Measurement of bank performance in Greece. South-Eastern Europe Journal of Economics, 1(1), 79-95.
Kroll, M., & Chesler, R. (1992). Rationale for using multiple regression analysis with complex interferences. European journal of clinical chemistry and clinical biochemistry, 30(7), 415-424. Retrieved from http://pascal-francis.inist.fr/vibad/index.php?action=getRecordDetail&idt=5625569
Kumar, M., & Yadav, G. C. (2013). Liquidity risk management in bank: a conceptual framework. AIMA journal of management & research, 7(2/4), 0974-497. Retrieved from https://apps.aima.in/ejournal_new/articlesPDF/Manish-Kumar.pdf
Lamberg, S., & Vålming, S. (2009). Impact of Liquidity Management on Profitability: A study of the adaption of liquidity strategies in a financial crisis. Retrieved from http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-30424
Lartey, V.C., Antwi, S., & Boadi, E.K. (2013). The relationship between liquidity and profitability of listed banks in Ghana. International journal of business and social science, 4(3), 48-56. Retrieved from https://ijbssnet.com/journals/Vol_4_No_3_March_2013/5.pdf
Mahmood, H., Khalid, S., Waheed, A., & Arif, M. (2019). Impact of macro specific factor and bank specific factor on bank liquidity using FMOLS approach. Emerging Science Journal, 3(3), 168-178. https://doi.org/10.28991/esj-2019-01179
Massoc, E. (2020). Banks, power, and political institutions: the divergent priorities of European states towards “too-big-to-fail” banks: The cases of competition in retail banking and the banking structural reform. Business and politics, 22(1), 135-160. https://doi.org/10.1017/bap.2019.18
Molyneux, P., & Thornton, J. (1992). Determinants of European bank profitability: A note. Journal of banking & Finance, 16(6), 1173-1178.
Munir, S., Ramzan, M., Rao, Q. I., Ahmad, M., & Raza, A. (2012). Financial Performance Assessment of Banks: A Case of Pakistani Public Sector Banks. International Journal of Business and Social Science, 3(14), 276-283. Retrieved from https://ijbssnet.com/journals/Vol_3_No_14_Special_Issue_July_2012/29.pdf
Murthy, Y., & Sree, R. (2003). A study on financial ratios of major commercial banks. Research Studies, College of Banking & Financial Studies, Sultanate of Oman, 3(2), 490-505. Retrieved from https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=1015238
Musa, H., Musova, Z., Natorin, V., Lazaroiu, G., & Boda, M. M. (2021). Comparison of factors influencing liquidity of European Islamic and conventional banks. Oeconomia Copernicana, 12(2), 375-398. https://doi.org/10.24136/oc.2021.013
Mwangi, G. N. (2012). The effect of credit risk management on the financial performance of commercial banks in Kenya (Doctoral dissertation).
Rahman, A., & Saeed, M. H. (2015). An empirical analysis of liquidity risk and performance in Malaysia Banks. Australian Journal of Basic and Applied Sciences, 9(28), 80-84. Retrieved from http://repo.uum.edu.my/id/eprint/25294/
Rani, D. M., & Zergaw, L. N. (2017). Bank specific, industry specific and macroeconomic determinants of bank profitability in Ethiopia. International Journal of Advanced Research in Management and Social Sciences, 6(3), 74-96. Retrieved from https://indianjournals.com/ijor.aspx?target=ijor:ijarmss&volume=6&issue=3&article=005
Santomero, A. M. (1997). Commercial bank risk management: an analysis of the process. Journal of Financial Services Research, 12(2), 83-115. https://doi.org/10.1023/A:1007971801810
Shapiro, S. S., & Wilk, M. B. (1965). An analysis of variance test for normality (complete samples). Biometrika, 52(3/4), 591-611. https://doi.org/10.2307/2333709
Shen, C. H., Chen, Y. K., Kao, L. F., & Yeh, C. Y. (2009). Bank liquidity risk and performance.(pp. 1_37). Working Paper. Department of Finance, National University of Kaohsiung.
Singh, A., & Sharma, A. K. (2016). An empirical analysis of macroeconomic and bank-specific factors affecting liquidity of Indian banks. Future Business Journal, 2(1), 40-53. https://doi.org/10.1016/j.fbj.2016.01.001
Soula, J. L. (2015). Université De Strasbourg (Doctoral dissertation, Université de Franche-Comté).
Tabash, M. I., & Khan, S. H. (2018). The Impact of Oil Price Volatility, Gross Domestic Product, Foreign Direct Investment on Islamic Banking Investments: An Empirical Evidence of the United Arab Emirates. International Journal of Energy Economics and Policy, 8(5), 306-312. Retrieved from https://www.econjournals.com/index.php/ijeep/article/view/6982
Trenca, I., Petria, N., & Corovei, E. A. (2015). Impact of macroeconomic variables upon the banking system liquidity. Procedia Economics and Finance, 32, 1170-1177. https://doi.org/10.1016/S2212-5671(15)01583-X
Trujillo‐Ponce, A. (2013). What determines the profitability of banks? Evidence from Spain. Accounting & Finance, 53(2), 561-586. https://doi.org/10.1111/j.1467-629X.2011.00466.x
Published
2022-08-10
How to Cite
Kapur, M., Banerjee, A., & Malik, K. (2022). FACTORS IMPACTING LIQUIDITY OF BANKS: AN EMPIRICAL STUDY FROM THE BANKING SECTOR IN THE UAE. Indian Journal of Finance and Banking, 10(1), 61-74. https://doi.org/10.46281/ijfb.v10i1.1779
Section
Regular Research Article/ Short Communication Article
Copyright (c) 2022 Manoj Kapur, Arindam Banerjee, Kunjana Malik
This work is licensed under a Creative Commons Attribution 4.0 International License.
