Determinants of Liquidity of Commercial Bank in Bangladesh

Abstract

Maintaining sufficient liquidity is one of the major areas of concentration for banks to operate efficiently. Holding excess liquidity or shortage in liquidity both can be caused to a problem for banks. In Bangladesh, commercial banks often face a problem of huge liquidity surplus. The present study attempts to empirically estimate and quantity the impacts of various bank-specific and macroeconomic factors that may impose credible impacts on the liquidity level of the banks. A regression analysis using balanced panel data of 20 commercial banks listed on the capital market of Bangladesh from 2012 to 2016 is conducted to serve this purpose. In this study, on the reported ratio of total liquid assets to the total asset has been used as the dependent variable while bank some specific factors such as: asset quality, capital adequacy, bank size, management quality, profitability, capital market development, gross domestic product growth rate etc. have been used as an independent variable. The study finds that capital adequacy, bank size, profitability, a total asset to the total loan have a significant impact on the liquidity. On the contrary asset quality, management quality, return on asset, return on equity, inflation does not significantly affect the liquidity of the commercial banks in the context of Bangladesh. This study recommends that banks should be careful while increasing capital and assets in the short- run to handle the current excess liquidity problem. The overall results of this study provide a new view for understanding the impact in the liquidity and liquidity management of the commercial bank industry in Bangladesh.