Bank specific and macroeconomic determinants of liquidity: evidence from Palestine

Abstract

The purpose of this paper is to investigate the impact of key bank specific and macroeconomic factors on bank liquidity for commercial banks operate in Palestine. Data are collected from the audited financial statements of the local and foreign commercial banks, association of banks in Palestine and the annual reports of Palestinian Monetary Authority (PMA). Research sample covers the periods from 2010 to 2019 by utilizing 110 bank year observations for commercial banks operate in Palestine. The study utilizes panel data regression analysis in order to explore the impact of the explanatory variables on bank liquidity. The estimation results reveal that bank size, capital and inflation rate have statistically significant association with bank liquidity with different signs. On the other hand, profitability, Z score, the growth rate of gross domestic product, funding costs and unemployment rate are not statistically significant (in at least three models). To the best of author’s knowledge, the present study is the first empirical study to explore the determinants of commercial bank liquidity in Palestine. The findings are expected to provide reference and guidance to Palestine Monetary Authority (PMA) in setting policies and procedures in relation to bank liquidity management and to help banks to manage liquidity risk and determine appropriate liquidity situations.