Exploring the nexus among the Macroprudential Policies, Funding Liquidity Risk and bank risk of Commercial Banks in Leading South East Asian Economies

Abstract

The present study explains the behavior of liquidity management, and the macro prudential Policies index and their impact on commercial banks’ risk, particularly on the selected conventional banks in ASEAN countries. The MPP are relatively new in the operations of commercial banks. Hence, more information is needed to understand their impacts on commercial banks’ performance, particularly in the selected conventional banks in ASEAN countries. The major issues in the banking sector of ASEAN countries are asset quality, liquidity risk, and the increasing regulatory pressure from the macro prudential perspectives. Moreover, the study takes a recently developed macro prudential index and its sub-indexes to assess the impact of these on the bank’s risk. Therefore, regulators will be able to utilize this study to enhance the quality of bank assets and choose the most lucrative portfolio. It is vital to highlight that the sample consists mostly of ASEAN-typical institutions. This research will shed light on the general and particular effects of this financing liquidity and MPP index on the BR of ASEAN banks. The dynamic panel is recommended over the static with the assumption that the MPP is likely to change slowly with respect to the change in the whole banking sector that’s why the lag length can help in determining the behavior of whole banking system. Our findings are in line with the new Basel III requirements that necessitate banks to utilize long-term funding sources to equal their fund utilization and to capture further capital in the future considering that these steps can help curtail the risk-taking of banks. Our findings present valuable implications for both market participants and policymakers. By understanding the consequences of the banks’ decision to fund LR and their risk-taking behavior, regulators may find ways to enhance banking regulatory frameworks in order to better control the behaviour of bank managers and to improve financial resilience.