Determinants of Commercial Banks Liquidity in Botswana
Author(s)
Mufaro Andrew Matandare , Boniswa Maleke ,
Download Full PDF Pages: 55-62 | Views: 864 | Downloads: 257 | DOI: 10.5281/zenodo.3510083
Volume 8 - September 2019 (09)
Abstract
The paper empirically analyzes the determinants of the liquidity of commercial banks in Botswana using a multiple linear regression model between 2009 and 2016 .On the basis of two indicators of liquidity risk, the research paper estimates the same group of determinants that co-create microeconomic factors (capital adequacy, size of the bank, spread, and non-performing loans) and macroeconomic factors (Gross Domestic Product and inflation). Findings indicated that significant factors that determine the liquidity of the commercial banks in Botswana are the size of the bank, non-performing loans and spread (the difference between interest rate loans and interest rates on deposits). Size of the bank and spread have a negative impact on bank liquidity whereas non-performing loans have a positive impact. The implication of these findings is that Bank of Botswana should devise legal requirements that give benchmarks of the above ratios to ensure sustainable liquidity of the commercial banks. This will help create a stable banking and financial sector and provides a conducive environment for sustainable economic growth and development
Keywords
Liquidity risk, Bank size, Spread, Non-performing loans, MLRM, Botswana
References
i. Acharya, V. V., and Naqvi, H. (2010). The Seeds of a Crisis: A Theory of Bank Liquidity and Risk-Taking Over the Business Cycle. NYU Working Paper No. 2451/29886. Available at SSRN: https://ssrn.com/abstract=1719428.
ii. Acharya, V., Cooley T., Richardson M., and Walter I. (2011). Manufacturing Tail Risk: A Perspective on the Financial Crisis of 2007-09. Foundations and Trends in Finance. Vol. 4. pp.247-325.
iii. Agenor, P., Aizenman, R., and Hoffmeister, A. W. (2004). The Credit Crunch in East Asia: What Can Excess Liquid Assets Tell Us? Journal of International Money and Finance. Vol. 23.
iv. Aspachs, O., and Tiesset, M. (2005). Liquidity, Banking Regulation and the Macroeconomy. London: London School of Economics.
v. Baumol, W. J., and Blinder, A. S. (1998). Economics: Principles and Policy. 8th Edition. Ft. Worth, TX: The Dryden Press.
vi. Berger, A. N., and Bouwman, C. (2009). Bank Liquidity Creation. Review of Financial Studies. Vol. 22(9). pp.3779-3837.
vii. Bessis, J. (2009). Risk Management in Banking. John Wiley & Sons Inc. Chichester.
viii. BIS. (2009). International Framework for Liquidity Risk Measurement, Standards and Monitoring. Basle Committee on Banking Supervision: Bank for International Settlements, Basel.
ix. Bonfim, D., and Kim, M. (2012). Liquidity Risk in Banking: Is there Herding? European Banking Center Discussion Paper No. 2012-024.
x. Brunnermeier, M. K. (2009). Deciphering the Liquidity and Credit Crunch 2007–2008. Journal of Economic Perspectives. Vol. 23(1). .p.77-100.
xi. Bunda, I., and Desquilbet, J. B. (2008). The Bank Liquidity Smile Across Exchange Rate Regimes. International Economic Journal. Vol 3. pp 361–386.
xii. Diamond, D. W. (2007). Illiquid Banks, Financial Stability, and Interest Rate Policy. Journal of Political Economy. Vol 120. pp.552-591.
xiii. Dittmar, A., Mahrt-Smith, J., and Servaes, H. (2003). International Corporate Governance and Corporate Cash Holdings. Journal of Financial And Quantitative Analysis. Vol. 38(1). pp.111-133.
xiv. Drehmann, M., and Nikolaou. K. (2009). Funding Liquidity Risk: Definition and Measurement. BIS Working Papers No 316. Bank for International Settlements.
xv. Fielding, D., and Shortland, A. (2005). Political Violence and Excess Liquidity in Egypt. Journal of Development Studies. Vol 4. pp 542–557.
xvi. Freixas, X., and Rochet, J. (1997). Microeconomics of Banking. Cambridge, MA: MIT Press.
xvii. Hutchison, P. (2007). Cash-to-Cash Analysis and Management. The CPA Journal. Vol. 77(8). pp.42-47.
xviii. Ismal, R. (2010). Assessment of Liquidity Risk Management in Islamic Banking Industry. International Journal of Islamic and Middle Eastern Finance and Management. pp147-167.
xix. Lucchetta, M. (2007). What Do Data Say About Monetary Policy, Bank Liquidity and Bank Risk Taking? Economic Notes by Banca Monte dei Paschi di Siena SpA. Vol. 36(2). pp.189-203.
xx. Marshall, B. R. (2014). Liquidity Commonality in Commodities. Journal of Banking and Finance. Vol. 37(1). pp11-20.
xxi. Moore, W. (2010). How do Financial Crises Affect Commercial Bank Liquidity? Evidence from Latin America and the Caribbean. MPRA paper, 21473.
xxii. Mureithi, J. K. (2003). An Empirical Investigation into the Determinants of Corporate Cash Holdings: A Case of Kenyan Quoted Companies. Unpublished MBA Research Project, University of Nairobi. Kenya.
xxiii. Nikolaou, K. (2009). Liquidity (Risk) Concepts: Definitions and Interactions. ECB Working Paper 1008.
xxiv. Repullo, R. (2004). Capital Requirements, Market Power, and Risk-Taking in Banking. Journal of Financial Intermediation. Vol. 13(2). pp.156-182.
xxv. Shen, C. H. (2009). Bank Liquidity Risk and Performance. In 17th Conference on the Theories and Practices of Securities and Financial Markets, Taiwan.
xxvi. Teply, P. (2011). The Future Regulatory Challenges of Liquidity Risk Management. World Academy of Science, Engineering and Technology. Vol 73. pp 945–949.
xxvii. Valverde, S. C., and Fernández, F. R. (2007). The Determinants of Bank Margins in European Banking. Journal of Banking and Finance. Vol. 31(7). pp.2043-2063.
xxviii. Vodova, P. (2011). Liquidity of Czech commercial banks and its determinants. International Journal of Mathematical Models and Methods in Applied Science. Vol. 5. pp.1060-1067.
xxix. Vodova, P. (2012). Liquidity of Slovak Commercial Banks and its Determinants. Proceedings of the 13th International Conference on Finance and Banking. Karviná, Silesian University.
xxx. Wójcik-Mazur, A. (2012). Zarządzanieryzykiempłynności w bankach: Management of Liquidity Risk in Banks. PolitechnikaCzęstochowska. Częstochowa.
xxxi. Wooldridge, J. W. (2012). Introductory Econometrics: A Modern Approach. 5th Edition. South-Western College Publishers.
Cite this Article: