Is Liquidity An Influencing Factor for Profitability of Banks? An Empirical Study

Year 2020, Summer, 393 - 402, 18.08.2020

Turan Öndeş Asfia Binte Osman

https://doi.org/10.21733/ibad.686734

Cited By: 1

Abstract

This study attempts to assess whether liquidity has any influence on the profitability of Turkish banks or not. We conduct the study using panel data collected from the website of the Association of Banks of Turkey. We select 10 biggest banks of Turkey based on asset size as on 31.12.2017 and used 10 years’ data ranging from 2008-2017. Loan Deposit, Deposit Asset, Liquid Asset to TA, Liquid Asset to Short- term Liability and Liquid Assets to Deposits and Non-Deposit Resources Ratio has been considered as a proxy of liquidity and average ROA and average ROE has been considered as a proxy of profitability. We analyze the data based on correlations analysis. We also run the Random effect regression model in our study with the support of E-Views 10. Our study reveals that Loan Deposit Ratio and Liquid Asset to Total Asset ratio do have a significant negative influence on both ROE and ROA. Deposit Asset Ratio does have a significant and negative influence on ROA but an insignificant and negative influence on ROE. Moreover, Liquid Asset to Deposit and Non-Deposit Resources Ratio shows a statistically significant but negative influence on ROE; in contrast an insignificant but positive impact on ROA.

Keywords

Liquidity, Profitability

Likidite Bankaların Kârlılığını Etkileyen Faktör mü? Ampirik Bir Çalışma

Abstract

Bu çalışma, likiditenin Türk bankalarının karlılığı üzerinde herhangi bir etkisi olup olmadığını değerlendirmeye çalışmaktadır. Çalışmayı Türkiye Bankalar Birliği web sitesinden toplanan panel verilerini kullanarak yürütüyoruz. 31.12.2017 tarihi itibariyle aktif büyüklüğüne göre Türkiye'nin en büyük 10 bankasını seçtik ve 2008-2017 yılları arasındaki 10 yıllık verileri kullandık. Kredi Mevduatı, Mevduat Varlığı, Toplam Varlığa (TA) Likit Aktif, Kısa Vadeli Borçlara Likit Aktif ve Likit Aktiflere Mevduat ile Mevduat Olmayan Kaynaklar Oranını likidite ve ortalama ROA ile ortalama ROE karlılığın vekili olarak kabul edilmiştir. Verileri korelasyon analizine dayanarak analiz ediyoruz. Ayrıca EViews 10 desteğiyle Rasgele Etki regresyon modelini de uyguladık. Çalışmamız, Kredi Mevduat Oranı ve Likit Aktif - Toplam Varlık oranının ROE ve ROA üzerinde önemli olumsuz etkileri olduğunu ortaya koymaktadır. Mevduat Varlık Oranı, ROA üzerinde önemli ve olumsuz bir etkiye sahip olmakla birlikte, ROE üzerinde önemsiz ve olumsuz bir etkiye sahiptir. Ayrıca, Likit Aktiflerin Mevduat ve Mevduat Olmayan Kaynaklara Oranı, ROE üzerinde istatistiksel olarak anlamlı fakat olumsuz etki göstermektedir; aksine ROA üzerinde önemsiz fakat olumlu bir etki göstermektedir.

Keywords

Liquidity, Profitability, Banking Sector, Likidite, Karlılık

References

• Akter, A., & Mahmud, K. (2014). Liquidity-Profitability Relationship in Bangladesh Banking Industry. International Journal of Empirical Finance, 2(4), 143–151.
• Al Nimer, M., Warrad, L., & Al Omari, R. (2015). The Impact of Liquidity on Jordanian Banks Profitability through Return on Assets. In European Journal of Business and Management www.iiste.org ISSN (Vol. 7). Retrieved from Online website: www.iiste.org
• Almaqtari, F. A., Al-Homaidi, E. A., Tabash, M. I., & Farhan, N. H. (2019). The determinants of profitability of Indian commercial banks: A panel data approach. International Journal of Finance & Economics, 24(1), 168–185. https://doi.org/10.1002/ijfe.1655
• Arif, A., & Nauman Anees, A. (2012). Liquidity risk and performance of banking system. Journal of Financial Regulation and Compliance, 20(2), 182–195. https://doi.org/10.1108/13581981211218342
• Bordeleau, É., & Graham, C. (2010). The Impact of Liquidity on Bank Profitability.
• Chukwunweike, V. (2014). The Impact of Liquidity on Profitability of Some Selected Companies: The Financial Statement Analysis (FSA) Approach. In Research Journal of Finance and Accounting www.iiste.org ISSN (Vol. 5). Retrieved from www.iiste.org
• Ibe, S. O. (2013). The Impact of Liquidity Management on the Profitability of Banks in Nigeria. In Journal of Finance and Bank Management (Vol. 1). Retrieved from www.aripd.org/jfbm
• Ikeora, J. J. E., & Werigbelegha, A. P. (2016). Liquidity Management And Banksâ€TM Profitability In Nigeria (1989-2013): An Empirical Analysis. Journal of Business Management and Economics, 4(7), 01–05. https://doi.org/10.15520/JBME.2016.VOL4.ISS7.205.PP01-05
• Lartey, V. C., Antwi, S., & Boadi, E. K. (2013). The Relationship between Liquidity and Profitability of Listed Banks in Ghana. In International Journal of Business and Social Science (Vol. 4). Retrieved from www.ijbssnet.com
• Olagunju, A., Olanrewaju, A., Olabode, D., & Samuel, O. (2011). Liquidity Management and Commercial Banks’ Profitability in Nigeria. In Research Journal of Finance and Accounting www.iiste.org ISSN (Vol. 2). Retrieved from Online website: www.iiste.org
• Sulieman Alshatti, A. (2015). The Effect of the Liquidity Management on Profitability in the Jordanian Commercial Banks. International Journal of Business and Management, 10(1). https://doi.org/10.5539/ijbm.v10n1p62