Determinants of bank liquidity: an econometric study of a sample of Iraqi commercial banks for the period 2006-2020

Abstract

The vital function of commercial banks in the national economy is manifested through the exercise of the role of financial intermediation based on transferring funds from surplus units to deficit units. From this point of view, the occurrence of any defect in the sources of funding will reflect on the availability of funds in the bank as well as the economy. Therefore, this study aimed to diagnose the internal and external determinants of bank liquidity. The study uses unbalanced panel data for a sample of (11) commercial banks listed in the Iraqi Stock Exchange, which were selected based on the availability of their annual data over a time series of (15) years representing the extended period (2006-2020). To prove the hypotheses of the study, the determinants of liquidity were measured by the financial ratios: capital adequacy ratio, non-performing loans ratio, loan growth rate, rate of return on assets, bank size, short-term interest rate, inflation rate, and GDP growth rate Total. Whereas, bank liquidity was measured by the monetary fund ratio. The study reached to a number of conclusions. The most important is that, the banking liquidity is determined by the internal and external environment variables of the bank, which are limited to (capital adequacy, non-performing loans, loan growth, rate of return on assets, size of the bank, short-term interest rate, and inflation rate). The study concluded that, the need to develop an effective information system that contributes to monitoring and studying the internal and external factors of the bank that have proven their impact on bank liquidity and follow them periodically with the intention of predicting their negative repercussions to reduce them, and the possibility of investing in the positive.