The Determinants of Liquidity of Commercial Banks in Bangladesh

Abstract

Liquidity is an important factor for whole banking sector. It is very important for financial markets and banking sectors to keep them running. A significant variable for the bank and the banking organization factors is liquidity, thus its determinants are remarkable. We applied a sample of 30 banks in Bangladesh for the period of 2014-2018 years and predicted two methods of liquidity. In this report I found the determinant of liquidity, at first I used panel data method from various data from 30 banks of 5 years. But there were no significant variables from bank specification and micro economic sector. After that I used Hausman test and ran the model. I used this model to check the appropriate variables. Yet, no significant variable was found. As I had a probability value level greater than 5% level, so this model could not accept null hypothesis, so here fixed effect method was more likely to be used among the random effect method. Here, ALA was dependent variable. Correlation value was not high. The result of panel data recreation analysis showed that, there is a positive risk between bank liquidity and capital adequacy share of non-performing loans and interest on loan and interbank transaction. We have also found negative influence of inflation rate, business cycle and financial crisis on liquidity. According to our findings, the relation between size of banks and their liquidity is ambiguous.