The Effect of Bank Liquidity and Unemployment on Bank Credit Risk
Keywords:
Credit risk, Liquidity risk, Unemployment, GMM, Panel data, Bank Liquidity, Liquidity mismatch indexAbstract
The aim of this article is to investigate the impact of bank liquidity risk and unemployment on credit risk in the South African banking sector. The panel data analysis approach is used, primarily employing the dynamic generalised method of moments model to examine 12 Banks in South Africa from 2009 to 2019. The results showed that credit risk is positively related to unemployment while, the relationship between credit risk and bank liquidity is negative in line with theory. The findings in this article may enhance bank policy formulation. Since credit and liquidity risk are a major source of risk that banks face especially in terms of stringent regulatory oversight and policy debate, this paper contributes significantly in the methods that central banks need to undertake to monitor and supervise the banking sector on liquidity and credit risks in time of crisis. Furthermore, employment is one critical economic fundamental in developing or emerging markets, the analysis of the nexus between employment and credit risk likewise provided important insights especially in time were the world is facing the COVID-19 pandemic.
References
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Boumparis, P., Milas, C., & Panagiotidis, T. (2019). Non-performing loans and sovereign credit ratings. International Review of Financial Analysis, 64, 301-314.
Cardone-Riportella, C,, samaniego-Medina, R. & Trujillo-Ponce, A. 2010. What drives bank securitisation? The Spanish experience. The Journal of banking and Finance, 34(11): 2639-2651.
Castro, V. 2013. Macroeconomic determinants of the credit risk in the banking system: The case of the GIPSI. Economic Modelling, 31: 673-683.
Dermine, J. (1986). Deposit rates, credit rates and bank capital: the Klein-Monti model revisited. Journal of Banking & Finance, 10(1), 99-114.
Dimitrios, A., Helen, L., & Mike, T. (2016). Determinants of non-performing loans: Evidence from Euro-area countries. Finance research letters, 18, 116-119.
Ericsson, J., & Renault, O. (2006). Liquidity and credit risk. The Journal of Finance, 61(5), 2219-2250.
Gorton, G., Metrick, A., & Xie, L. (2020). The flight from maturity. Journal of Financial Intermediation, 100872.
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Iyer, R., & Puri, M. (2012). Understanding bank runs: The importance of depositor-bank relationships and networks. American Economic Review, 102(4), 1414-45.
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Louzis, D., Vouldis, A. & Metaxas, V. 2012. Macroeconomic and bank-specific determinants of nonperforming loans in Greece: a comparative study of mortgage, business and consumer loan portfolios. Journal of Banking and Finance, 36(4): 1012-1027.
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Messai, A. S., & Gallali, M. I. (2019). Macroeconomic determinants of credit risk: a P-VAR approach evidence from Europe. International Journal of Monetary Economics and Finance, 12(1), 15-24.
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Ponnala, V., & Kasilingam, R. (2019). An Interaction of Credit Risk And Liquidity Risks and Its Impact on Bank Stability: Evidence from Indian Commercial Banks. The Management Accountant Journal, 54(1), 60-67.
Waemustafa, W. and Sukri, S. 2015. Bank Specific and Macroeconomics Dynamic Determinants of Credit Risk in Islamic Banks and Conventional Banks. International Journal of Economics and Financial Issues, 5(2): 476-481.
Yüksel, S. (2017). Determinants of the credit risk in developing countries after economic crisis: A case of Turkish banking sector. In Global financial crisis and its ramifications on capital markets (pp. 401-415). Springer, Cham.
Ahmad, I., Salam, S., Ahmad, A., & Abbas, S. (2019). The nexus between credit risk and liquidity risk and their impact on banks financial performance: Evidence from Pakistan. Sarhad Journal of Management Sciences, 5(1), 67-86.
Apostolik, R. and Donohue, C. 2015. Foundations of Financial Risk: An overview of financial risk and risk-based financial regulation. New York: Wiley.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of economic studies, 58(2), 277-297.
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of econometrics, 68(1), 29-51.
Bai, J., Krishnamurthy, A., & Weymuller, C. H. (2018). Measuring liquidity mismatch in the banking sector. The Journal of Finance, 73(1), 51-93.
Berge, T.O. and Boye, K.G. 2007. An analysis of banks’ problem loans. Norges Bank. Economic Bulletin, 78(2): 65-76.
Berhanu, B. 2015. Determinants of Banks Liquidity and their Impact onProfitability: Evidenced from eight commercial banks in Ethiopia (Doctoral dissertation, AAU). Addis Ababa University, Addis Ababa.
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of econometrics, 87(1), 115-143.
Boumparis, P., Milas, C., & Panagiotidis, T. (2019). Non-performing loans and sovereign credit ratings. International Review of Financial Analysis, 64, 301-314.
Cardone-Riportella, C,, samaniego-Medina, R. & Trujillo-Ponce, A. 2010. What drives bank securitisation? The Spanish experience. The Journal of banking and Finance, 34(11): 2639-2651.
Castro, V. 2013. Macroeconomic determinants of the credit risk in the banking system: The case of the GIPSI. Economic Modelling, 31: 673-683.
Dermine, J. (1986). Deposit rates, credit rates and bank capital: the Klein-Monti model revisited. Journal of Banking & Finance, 10(1), 99-114.
Dimitrios, A., Helen, L., & Mike, T. (2016). Determinants of non-performing loans: Evidence from Euro-area countries. Finance research letters, 18, 116-119.
Ericsson, J., & Renault, O. (2006). Liquidity and credit risk. The Journal of Finance, 61(5), 2219-2250.
Gorton, G., Metrick, A., & Xie, L. (2020). The flight from maturity. Journal of Financial Intermediation, 100872.
Hakimi, A., & Zaghdoudi, K. (2017). Liquidity risk and bank performance: An empirical test for Tunisian banks. Business and Economic Research, 7(1), 46-57.
Hang, H. T. T., Trinh, V. K., & Vy, H. N. T. (2019, January). Analysis of the Factors Affecting Credit Risk of Commercial Banks in Vietnam. In International Econometric Conference of Vietnam (pp. 522-532). Springer, Cham.
Hodge, D. (2009). Growth, employment and unemployment in South Africa. South African Journal of Economics, 77(4), 488-504.
Hund, J., & Lesmond, D. A. (2008). Liquidity and credit risk in emerging debt markets. Available at SSRN 1107586.
Iyer, R., & Puri, M. (2012). Understanding bank runs: The importance of depositor-bank relationships and networks. American Economic Review, 102(4), 1414-45.
Kharabsheh, B. (2019). Determinants of Bank Credit Risk: Empirical Evidence from Jordanian Commercial Banks. Academy of Accounting and Financial Studies Journal, 23(3), 1-12.
Louzis, D., Vouldis, A. & Metaxas, V. 2012. Macroeconomic and bank-specific determinants of nonperforming loans in Greece: a comparative study of mortgage, business and consumer loan portfolios. Journal of Banking and Finance, 36(4): 1012-1027.
Marozva, G. (2017). An empirical study of liquidity risk embedded in banks' asset liability mismatches (Doctoral dissertation). Univesity of South Africa, Pretoria
Marozva, G. (2020). Stock Market Liquidity and Monetary Policy. International Journal of Economics & Business Administration (IJEBA), 8(2), 265-275.
Marozva, G., & Makina, D. (2020). Liquidity risk and asset liability mismatches: evidence from South Africa. Studies in Economics and Econometrics, 44(1), 73-112.
Messai, A. S., & Gallali, M. I. (2019). Macroeconomic determinants of credit risk: a P-VAR approach evidence from Europe. International Journal of Monetary Economics and Finance, 12(1), 15-24.
Nkusu, M. 2011. Nonperforming loans and micro financial vulnerabilities in advanced economies. IMF Working Papers, 161.
Ponnala, V., & Kasilingam, R. (2019). An Interaction of Credit Risk And Liquidity Risks and Its Impact on Bank Stability: Evidence from Indian Commercial Banks. The Management Accountant Journal, 54(1), 60-67.
Waemustafa, W. and Sukri, S. 2015. Bank Specific and Macroeconomics Dynamic Determinants of Credit Risk in Islamic Banks and Conventional Banks. International Journal of Economics and Financial Issues, 5(2): 476-481.
Yüksel, S. (2017). Determinants of the credit risk in developing countries after economic crisis: A case of Turkish banking sector. In Global financial crisis and its ramifications on capital markets (pp. 401-415). Springer, Cham.
Published
2020-10-06
How to Cite
Marozva, G., & Mutezo, A. T. (2020). The Effect of Bank Liquidity and Unemployment on Bank Credit Risk: Array. EuroEconomica, 39(3). Retrieved from https://dj.univ-danubius.ro/index.php/EE/article/view/573
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