Impact on Bank-Specific and Macroeconomic Factors on Liquidity of Domestic and Foreign Commercial Banks in Malaysia

  • Tan Kock Lim
  • Loo Teck Khun
  • Kong Yin Mei

Abstract

The objective of this paper is to investigate the impact of bank-specific and macroeconomic factors on the liquidity of commercial banks in Malaysia. The study focuses on a sample of 18 banks, including 10 international banks and 8 local banks, from 2009 to 2020. The research utilizes regression analysis, Diagnostic Checking Test and Pooled Ordinary Least Square, to see how different factors affect liquidity determinants between international and local banks. The results reveal that international banks tend to be more liquid than local banks, and the liquidity determinants differ between the two groups. While certain factors are crucial for local banks, they may not be as significant for foreign banks. For instance, the exchange rate has a significant impact on the liquidity risk of local banks, but not on international banks. However, some determinants, such as bank size, leverage, and financial crisis, are found to be significant for both international and local banks. Interestingly, the study also highlights that the liquidity risk posed by international banks remains unaffected by global financial crises., whereas local banks in Malaysia are negatively impacted. This suggests that local banks are less resilient than international banks during financial crises. The findings of this study have practical implications, as they can assist banks in formulating effective liquidity strategies and providing insights to the government for policy interventions to enhance the chances of bank survival, particularly during financial crises.

References

Ahmed. Z. (2015). The efficiency of exchange rate market: A case study on Pakistan. International Journal of Economics, Finance and Management Sciences 3(2): 125-137
Arif, A., and Nauman, A. (2012). Liquidity risk and performance of banking system. Journal of Financial Regulation and Compliance, 20(2), 182-195.
Aspachs, O., Nier, E., and Tiesset, M. (2005). Liquidity, Banking Regulation and the Macroeconomy: Evidence on Bank Liquidity Holdings from a Panel of UK-Resident Bank. Working paper, Bank of England. No. 393
Bashir, A. (2003). Determinants of Profitability in Islamic Banks: Some Evidence from the Middle East. Islamic Economics Studies, 11(1), 31-57.
Berger, A.N. and De Young, R., (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking & Finance, 21(6), 849-870.
Bhati, S.S., and DeZoysa, A. (2012). An examination of factors affecting liquidity management in Indian financial system., African Journal of Finance and Management, 24(1), 21–21.
Bhati, S., De Zoysa, A. and Jitaree, W. (2015). Determinants of Liquidity in Nationalised Banks of India, African Journal of Finance and Management, 24(1), 1-11
Bolton, P. and. Jeanne, O. (2011). Sovereign default risk and bank fragility in financially integrated economies, IMF Economic Review, 59, 162–194.
Bunda, I. and Desquilbet, J.B. (2008). The Bank Liquidity Smile Across Exchange Rate Regimes. International Economic Journal, 22(3), 361-386.
Cantrell, B., McInnis, J. and Yust, C. (2013). Predicting credit losses: Loan fair values versus historical costs. The Accounting Review, 89(1), 147-176.
Choon, L.K., Hooi,L.Y., Murthi,L., Yi,,T..S., and Shven,, T. .Y. (2013). The determinants influencing liquidity of Malaysia commercial banks, and its implication for relevant bodies: evidence from 15 Malaysian commercial banks. Retreived from http://eprints.utar.edu.my.
Chua, Z., (2013). Determinants of Islamic banks profitability in Malaysia (SSRN Scholarly Paper No. ID 2276277). Social Science Research Network, Rochester, NY.
Combey, A., and Togbenou, A. (2017). The Bank Sector Performance and Macroeconomics Environment: Empirical Evidence in Togo. International Journal of Economics and Finance, 9(2), 180-188.
Delechat, Corinne, A.C., Henao, M., and Vtyurina., S., (2012). The Determinants of Banks’ Liquidity Buffers in Central America, IMF Working Paper Series WP/12/301.
Dinger, V. (2009). Do Foreign owned Banks Affect Banking System Liquidity risk? Journal of Comparative Economic, 37, 647-57.
Duchin, R., Ozbas, O. and Sensoy, B. (2010). Costly external finance, corporate investment, and the sub prime mortgage credit crisis. Journal of Financial Economics, 9, 418–435.
Eichengreen, B. and Gupta, P. (2013). Tapering Talk: The Impact of Expectations of Reduced Federal Reserve Security Purchases on Emerging Markets. MPRA Paper No. 53040. Online at https://mpra.ub.uni-muenchen.de/53040/
Frankel, J (2008). Can leading indicators assess country vulnerability? Evidence from the 2008–09 global financial crisis. Journal of International Economics, 87, 216–231
Garcia, M and Fernandez, M. (2008), Risk-Taking Behaviour and Ownership in the Banking Industry: The Spanish Evidence., Journal of Economics and Business, 60(4), 332-354.
Gennaioli, N,, Shleifer., A. and Robert Vishny, R. (2015).. Neglected Risks: The Psychology of Financial Crises. NBFR Series Working Paper 20875.
Horváth, R., Seidler, J., and Weill, L. (2014). Bank Capital and Liquidity Creation: Granger-Causality Evidence. Journal of Financial Services Research, 45(3), 341-361.
Isaev, M. & Masih, M. (2017). Macroeconomic and bank-specific determinants of different categories of non-performing financing in Islamic banks: Evidence from Malaysia, MPRA Paper 79719, University Library of Munich, Germany. https://mpra.ub.uni-muenchen.de/79719/
Kumhof, M. and Tanner, E. (2005). Government Debt: A Key Role in Financial Intermediation, IMF Working Papers.. 05/57
Lagat, C., and Nyandema, D. (2016). The Influence of Foreign Exchange Rate Fluctuations on the Financial Performance of Commercial Banks Listed at the Nairobi Securities Exchange.. British Journal of Marketing Studies, 4(3), 1-11.
Leitner, Y. (2014). Should Regulators Reveal Information About Banks?. Business Review, 3, 1-8.
Louzis, D. P., Vouldis, A. T., and Metaxas, V. L. (2010). Macroeconomic and bank-specific determinants of non-performing loans in Greece: a comparative study of mortgage, business and consumer loan portfolios. Journal of Banking and Finance, 36(4), 1012-1027.
Moussa, M. (2015). The Determinants of Bank Liquidity: Case of Tunisia. .International Journal of Economics and Financial. 5(1), 249-259.
Osundina, C., Osundina.. J., Jayeoba, O. and Olayinka, I. (2016). Exchange Rate Volatility and Banks Performance: Evidence from Nigeria, International Journal of Economics and Business Management,.2(4), 1-11.
Pasiouras, F., and Kosmidou, K. (2007). Factors Influencing the Profitability of Domestic and Foreign Commercial Banks in the European Union. Research in International Business and Finance, 21(2), 222-237.
Podpiera, J. and Weill, L., (2008). Bad luck or bad management? Emerging banking market experience. Journal of Financial Stability, 4(2), 135-148.
Sayedi, S. (2014). Credit Risk, Market Power and Exchange Rate as Determinants of Banks Performance in Nigeria. IOSR Journal of Business and Management, 16(1), 35-46.
Tseganesh, T. (2012). Determinants of Banks Liquidity and their Impact on Financial Performance: empirical study on commercial banks in Ethiopia
Vítor. C. (2013), “Macroeconomic determinants of the credit risk in the banking system: The case of the GIPSI”, Economic Modelling 31, 672–683
Vodová, P. (2013). Liquid assets in banking: What matters in the Visegrad Countries? E&M Ekonomie a Management, 16(3), 113-129
Wasiuzzaman, S., and Tarmizi, H. (2010). Profitability of Islamic Banks in Malaysia: An Empirical Analysis. Journal of Islamic Economics, Banking and Finance, 6(4), 53-68
Published
2023-04-30
How to Cite
KOCK LIM, Tan; TECK KHUN, Loo; YIN MEI, Kong. Impact on Bank-Specific and Macroeconomic Factors on Liquidity of Domestic and Foreign Commercial Banks in Malaysia. Asian Journal of Research in Business and Management, [S.l.], v. 5, n. 1, p. 269-281, apr. 2023. Available at: <https://myjms.mohe.gov.my/index.php/ajrbm/article/view/22276>. Date accessed: 24 june 2024.
Section
Articles