Determinants of Bank Liquidity: A 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. This study aims at diagnosing the two factors (internal and external) that affect banking liquidity, and then explaining the impact of those factors affecting banking investment. In order to achieve the goal, a sample of (11) commercial banks listed in the Iraqi Stock Exchange for the period (2006-2020) was selected. To prove the hypotheses of the study, the determinants of liquidity (as independent variables) were measured by the following 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 (as dependent variables) was measured by the monetary fund ratio. Using the sectional time series model (Panel Data), the study reached a number of conclusions, the most important of which is that bank 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, bank size, price short-term interest, inflation rate). The study concluded with a number of recommendations, perhaps the most important of which is 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.