Determinants of Liquidity and its Relationship with Profitability – The Case of Macedonian Banking Sector

Abstract

This paper deals with the liquidity and profitability of the Macedonian banking sector and attempts to identify the determinants of liquidity mainly focusing on the relationship between profitability and liquidity. First, we analyzed the level of liquidity and profitability and we found that the Macedonian banking system is characterized by high liquidity and relatively high profitability compared with the banking systems of the countries in the region and the more developed economies. Furthermore, the paper examines the determinants of liquidity. The empirical analysis is carried out through the use of the dynamic panel analysis based on the generalized method of moments (GMM) methodology on a dataset of overall banking sector operating in Macedonia in the period from 2007 to 2017. The study uses seven factors as potential determinants of banks liquidity, five of them are internal banks variables (lagged value of liquidity, bank profitability, size of the bank, capital adequacy and non-performing loans) while two of them are macroeconomic variables (GDP growth rate and Central bank reference interest rate). The study showed that profitability is one of the most important factors influencing liquidity in the Macedonian banks. The other determinants with important positive effects on liquidity are lagged value of liquidity, non-performing loans and Central bank interest rate but, to a somewhat lower extent. On the other hand, only the size of the bank is significantly inversely associated with bank liquidity. The capital adequacy and GDP growth rate are not statistically significant factors of Macedonian banks liquidity.

Macroeconomic and Bank-Specific Variables and the Liquidity of Jordanian Commercial Banks

“…The failure of customers to pay their debts in many countries of the world during the global financial crisis led to the bankruptcy of dozens of banks around the world due to the decline in the rates of liquidity in the banks to critical levels, with which banks have stopped continuing to carry out their business. The result is in line with the results of (Khanal, 2019;Gautam, 2016;Ojha, 2018;Shamas, et al, 2018), and not in line with results of (Gjorgi, 2019;Vodava, 2011;Mashmba, 2014). The results show that INF has a positive and significant effect on (LIQ) with a coefficient of 0.79 and a significance of 1%.…”

“…The researchers found out that the bank size, deposits, loans, GDP, and inflation are determinants of bank (LIQ). Gjorgi and Goran (2019), tested the (LIQ) determinants of banks in Macedonia. The study covered the period 2007-2017 and used the GMM method for the analysis.…”

Pengaruh Modal Kerja terhadap Profitabilitas pada Perbankan di Negara Kawasan Asia Tenggara

“…Hal ini didukung oleh penelitian Rahmadani et al (2021) yang menyatakan bahwa loan to deposit ratio atau banking ratio memiliki pengaruh positif terhadap laba. Hasil penelitian ini juga didukung oleh Gjorgji & Goran (2019) yang menyatakan bahwa banking ratio memiliki pengaruh positif terhadap profitabilitas. Semakin besar profitabilitas suatu bank, maka semakin besar pula kemampuan bank untuk memenuhi kebutuhan likuiditasnya.…”