| Title : | Idiosyncratic and macroeconomic determinants of banks' liquidity in Nepalese commercial banks | | Material Type: | printed text | | Authors: | Aadersh Raj Joshi, Author | | Publication Date: | 2016 | | Pagination: | 116p. | | Size: | GRP/Thesis | | Accompanying material: | 6/B | | Languages : | English | | Descriptors: | Idiosyncratic
| | Class number: | 330.072 | | Abstract: | The role of banking sector is very important for a healthy financial system within which liquidity is one of major factors. From the past decays many studies have shown that banking crisis has causes the large disruption of real economy(Aspachs, Nier, & Tiesset, 2005). The attention has been paid by lender to the last resort to overcome the liquidity crisis. Liquidity is the key concern for banking and financial institution in present scenario, basically after the economic crisis of 2008. There is wide agreement that insufficient liquidity were the root causes of crisis and ongoing disruption of world financial system(Franklin & Elena, 2008). The whole financial system depends on the best liquidity management because small flaws in the financial system may adversely affect the whole economy.
Bankrupt is a pure liability risk caused only by the destabilizing depositors’ behavior and determined by depositor’s massive withdrawals(Diamond, 1983). Therefore, proper management of liquidity is very important which is determined by several internal and external factors or idiosyncratic and macroeconomic variables. Liquidity risk arises when banking and financial institution is unable to fulfill the present demand of the customers or unable to convert the short term deposit into long term deposit(Bonner et al., 2013). Bank should maintain the appropriate liquidity policy or acquire appropriate liquidates when needed immediately at suitable cost.
Liquidity management is very important concept that is receiving the serious attention all over the world. The importance of liquidity management as it affects corporate profitability in today’s business cannot be ignored. It is very important to understand the consequences, due to lack of adequate liquidity. Thus, this study also try to help banking and financial institution to understand the role of liquidity and which part they should focus most in order to maintain the amount of liquidity. The specific objective areto examine the structure and pattern of liquidity, interest margin, Tobin’s Q, loan growth, size, profitability, GDP, inflation and short term interest rate, to analyze the relationship between liquidity and idiosyncratic variables, to examine the relationship between liquidity and macroeconomic variables, to identify the major determinants of liquidity in case of Nepalese commercial banks and to find out the importance of liquidity in Nepalese financial market.
This study use pooled least square method to measure the relationship between bank liquidity and idiosyncratic as well as macroeconomic variables. The research design adopted in the study is causal comparative type. This study is based on the secondary data. The secondary data for the study was compiled from the data base maintained by commercial banks, report published by Nepal Rastra bank, website of respective banks, world bank sites and various economic survey published by Ministry of finance of Nepal. This study focuses on idiosyncratic and macroeconomic determinant of liquidity of 20 commercial banks of Nepal and consists of 7 years data.
This study shows that interest margin is negatively related to liquid assets divided by total assets. Similarly, profitability, total assets, loan growth and Treasury bills is negatively related with liquid assets divided by total assets. Tobin’s Q, GDP and inflation is positively related with liquid assets divided by total assets. Likewise, profitability, total assets, loan growth, Treasury bill and inflation is negatively related with liquid assets divided by total deposit. Tobin’s Q and GDP is positively related with liquid assets divided by total deposit. The regression of idiosyncratic and macroeconomic factors on liquid assets divided by total assets has been computed by using ordinary least square estimates. The study has found that beta coefficients are negative for interest margin, profitability, loan growth, total assets and Treasury bill. The beta coefficients are significant for interest margin and Treasury bill at 5 percent level of significant. The beta coefficient for profitability is significant at 10 percent level. The beta coefficients are positive for TQ, GDP and Inflation. However, beta coefficients are significant at 5 percent level of significance for Tobin’s Q.
The study has also found that beta coefficients are negative for interest margin, profitability, loan growth, total assets, Treasury bill and inflation. The beta coefficient is positive for GDP and Tobin’s Q. However, beta coefficient is significant at 5 percent level of significance for Treasury bill at 5 percent level of significance. Thus, this study concludes that interest margin, Tobin’s Q, profitability, Treasury bill and GDP are the major determinants of liquidity of Nepalese commercial banks.
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Idiosyncratic and macroeconomic determinants of banks' liquidity in Nepalese commercial banks [printed text] / Aadersh Raj Joshi, Author . - 2016 . - 116p. ; GRP/Thesis + 6/B. Languages : English | Descriptors: | Idiosyncratic
| | Class number: | 330.072 | | Abstract: | The role of banking sector is very important for a healthy financial system within which liquidity is one of major factors. From the past decays many studies have shown that banking crisis has causes the large disruption of real economy(Aspachs, Nier, & Tiesset, 2005). The attention has been paid by lender to the last resort to overcome the liquidity crisis. Liquidity is the key concern for banking and financial institution in present scenario, basically after the economic crisis of 2008. There is wide agreement that insufficient liquidity were the root causes of crisis and ongoing disruption of world financial system(Franklin & Elena, 2008). The whole financial system depends on the best liquidity management because small flaws in the financial system may adversely affect the whole economy.
Bankrupt is a pure liability risk caused only by the destabilizing depositors’ behavior and determined by depositor’s massive withdrawals(Diamond, 1983). Therefore, proper management of liquidity is very important which is determined by several internal and external factors or idiosyncratic and macroeconomic variables. Liquidity risk arises when banking and financial institution is unable to fulfill the present demand of the customers or unable to convert the short term deposit into long term deposit(Bonner et al., 2013). Bank should maintain the appropriate liquidity policy or acquire appropriate liquidates when needed immediately at suitable cost.
Liquidity management is very important concept that is receiving the serious attention all over the world. The importance of liquidity management as it affects corporate profitability in today’s business cannot be ignored. It is very important to understand the consequences, due to lack of adequate liquidity. Thus, this study also try to help banking and financial institution to understand the role of liquidity and which part they should focus most in order to maintain the amount of liquidity. The specific objective areto examine the structure and pattern of liquidity, interest margin, Tobin’s Q, loan growth, size, profitability, GDP, inflation and short term interest rate, to analyze the relationship between liquidity and idiosyncratic variables, to examine the relationship between liquidity and macroeconomic variables, to identify the major determinants of liquidity in case of Nepalese commercial banks and to find out the importance of liquidity in Nepalese financial market.
This study use pooled least square method to measure the relationship between bank liquidity and idiosyncratic as well as macroeconomic variables. The research design adopted in the study is causal comparative type. This study is based on the secondary data. The secondary data for the study was compiled from the data base maintained by commercial banks, report published by Nepal Rastra bank, website of respective banks, world bank sites and various economic survey published by Ministry of finance of Nepal. This study focuses on idiosyncratic and macroeconomic determinant of liquidity of 20 commercial banks of Nepal and consists of 7 years data.
This study shows that interest margin is negatively related to liquid assets divided by total assets. Similarly, profitability, total assets, loan growth and Treasury bills is negatively related with liquid assets divided by total assets. Tobin’s Q, GDP and inflation is positively related with liquid assets divided by total assets. Likewise, profitability, total assets, loan growth, Treasury bill and inflation is negatively related with liquid assets divided by total deposit. Tobin’s Q and GDP is positively related with liquid assets divided by total deposit. The regression of idiosyncratic and macroeconomic factors on liquid assets divided by total assets has been computed by using ordinary least square estimates. The study has found that beta coefficients are negative for interest margin, profitability, loan growth, total assets and Treasury bill. The beta coefficients are significant for interest margin and Treasury bill at 5 percent level of significant. The beta coefficient for profitability is significant at 10 percent level. The beta coefficients are positive for TQ, GDP and Inflation. However, beta coefficients are significant at 5 percent level of significance for Tobin’s Q.
The study has also found that beta coefficients are negative for interest margin, profitability, loan growth, total assets, Treasury bill and inflation. The beta coefficient is positive for GDP and Tobin’s Q. However, beta coefficient is significant at 5 percent level of significance for Treasury bill at 5 percent level of significance. Thus, this study concludes that interest margin, Tobin’s Q, profitability, Treasury bill and GDP are the major determinants of liquidity of Nepalese commercial banks.
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