Exploring the liquidity risk factors in the Balkan Region banking system

Abstract

Liquidity as a field of study has received considerable attention from various researchers over the last few years. We have conducted this research in order to identify the factors affecting the liquidity of the banking system of nine Balkan countries, specifically Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Macedonia, Montenegro, Romania and Serbia for a period of sixteen years. We collected data on factors such as capital adequacy, non-performing loans, deposit growth and bank profitability and analysed them using the following statistical techniques: a linear regression model using Pooled Ordinary Least Squares (OLS), a Fixed Effects Model, a Random Effects Model and a Hausman-Taylor regression to account for potential endogeneity, on a set of data collected from banks in nine Balkan states, during the period 2000-2015. We also analysed the macroeconomic factors influencing the bank's liquidity, such as GDP, inflation, unemployment and marginal interest rates. Based on panel data analysis, it is noted that specific factors and macroeconomic factors, specifically, capital adequacy, non-performing loans, deposit growth, GDP, unemployment rate and marginal interest rate, significantly affect bank liquidity. However, inflation and profitability do not.