The impact of bank-specific factors on the liquidity of commercial banks in Serbia

TLDR: In this article, the authors identify internal factors that affect the liquidity of commercial banks in Serbia and identify the key indicators of impact on the banking sector in Serbia, one can define the strategies and model for improvement of the operation of banks in financial markets.

Abstract: The aim of this work is to identify internal factors that affect the liquidity of commercial banks in Serbia. Research results in the observed period from 2008 to 2013 using regression analysis indicate that the liquidity of banks is positively correlated with capital adequacy ratios and interest income to total assets ratio, while negative and statistically significant relationship exists between the indicators of liquidity and the size of the bank (measured by bank assets), expense ratios compared to interest income and return on equity ratios. This research represents the first step in achieving optimization model of liquidity, because many financial institutions, although profitable, are faced with the problem of maintaining liquidity. Research question that arises is the following: Which of the observed indicators affect the liquidity of commercial banks in Serbia the most? The survey used unconsolidated balances of 23 commercial banks in the period from 2008 to 2013. In particular, using ordinary least squares technique, author takes two different measures of liquidity risk into consideration. After obtaining an answer to the main question of this work regarding the key indicators of impact on the liquidity of the banking sector in Serbia, one can define the strategies and model for improvement of the operation of banks in financial markets. The results highlight that size, capitalization and profitability of banks can have an impact on liquidity risk management.