Determinants of Liquidity and Market Risk and the Effect on Bank Performance in Bahrain and Malaysia Banking

Abstract

This paper examines the determinants of liquidity and market risk of conventional and Islamic banks for two countries; Malaysia and Bahrain and the effect of the determinants on bank performance. Data were collected from 2008 to 2016 and analyzes using panel data analysis. The results reveal that bank capitalization and interest rate are significant determinants of liquidity and market risk respectively in both countries. In addition, banks capitalization and non-interest income/income attributable significantly affects performance in both banking system. The findings of this study among others can assist the banks in complying with the existing guidelines on risk management and supervision provided by the Basel Committee on Banking Supervision and Islamic Financial Services Board. Instead of that, this result also can coordinating technical and vocational education and training development with government departments responsible for trade and industry especially in banking system, workplace relations, and science and technology, to align skills being taught with government policy directions.

The determinants of bank profitability of GCC: The role of bank liquidity as moderating variable—Further analysis

“…Some authors indicated that banks' sizes are extended through the new market entry or new branches development, incurring additional operating costs throughout the way and eroding their profits (Dietrich & Wanzenried, 2014). The size–profitability relationship has been, time and again, examined by prior works and evidence shows that size does have a role as a bank profitability determinant, with some of them supporting a positive bank size–bank performance relationship (Adelopo et al, 2018; Ali & Puah, 2019; Almaqtari et al, 2019; Bolarinwa et al, 2019; Menicucci & Paolucci, 2016; Pervan & Pelivan, 2015; Sahyouni et al, 2018; Zolkifli et al, 2019). Meanwhile, other empirical works showed a negative relationship between the two variables, and these include Batten and Vo (2019), Francis (2013), Menicucci and Paolucci (2016) and Supiyadi, Arief, and Nugraha (2019).…”

“…In this regard, a robust capital structure is required by banks for economic development as it contributes to strengthening the financial crises and safeguards depositors in the face of instability in macroeconomic factors (Chowdhury & Rasid, 2015). In other words, capitalization is a must to ensure that the bank liquidity risk can be better managed (Zolkifli et al, 2019). Capitalization is referred to as an assessment tool for capital adequacy and for determining the bank's general soundness, representing its capitalization level.…”

“…Prior works dedicated to baking profitability are based on various perspectives; for instance, Short (1979) and Bourke's (1989) pioneering studies led the way in examining such determinants using cross‐country data sets (Abdul Hadi, Hussain, Suryanto, & Eddy Yap, 2018; Al‐Harbi, 2019; Aspachs, Nier, & Tiesset, 2005; Boateng, 2018; Chowdhury & Rasid, 2015; Cucinelli, 2013; El‐Chaarani, 2019; Le & Ngo, 2020; Menicucci & Paolucci, 2016; Zolkifli, Samsudin, & Yusof, 2019). Other authors made use of individual country data sets with the same objective of examining bank profitability determinants, and these include Al‐Homaidi, Tabash, Farhan, and Almaqtari (2018), Ali and Puah (2019), Almaqtari, Al‐Homaidi, Tabash, and Farhan (2019), Batten and Xuun Vinh (2017), Berihunengida (2015), Bibi and Mazhar (2019), Bolarinwa et al (2019), Ayele (2012), Munteanu (2012), and Pillai and Al‐Malkawi (2018).…”

“…Following the earlier studies on the topic, numerous articles have focused on examining the topic using internal factors data set (Abdul Hadi et al, 2018; Adelopo et al, 2018; Al‐Harbi, 2019; Al‐Homaidi et al, 2018; Ali & Puah, 2019; Batten & Xuun Vinh, 2017; Menicucci & Paolucci, 2016; Sahyouni et al, 2018; St‐Hilaire & Boisselier, 2018; Yameen, Farhan, & Tabash, 2019; Zolkifli et al, 2019). Some other articles made use of external and internal data set to provide insight into the bank profitability determinants (Al‐Homaidi et al, 2018; Al‐Homaidi, Tabash, Al‐Ahdal, Farhan, & Khan, 2020; Cucinelli, 2013; El‐Chaarani, 2019; Mahmood, Khalid, Waheed, & Arif, 2019; Munteanu, 2012; Negash, 2019).…”

“…Lastly, prior studies have called on future studies (Al‐Homaidi et al, 2018; Chowdhury & Rasid, 2015; Menicucci & Paolucci, 2016; Zolkifli et al, 2019) to adopt internal bank profitability as a variable. Therefore, in the present study, internal variables of bank profitability (bank liquidity, bank size, capitalization, assets quality, assets management and leverage) are examined.…”