The Determinants of Private Banks’ Liquidity in Syria During the Syrian Crisis

Abstract

Although the banking sector is at the core of any nation's economy, it is very vulnerable to crises and macro-economic shocks. While many banking indicators could be affected by crises, liquidity in particular requires special attention due to its sensitivity to the changes in macro-variables. This research aims to identify the liquidity determinants of the Syrian private banks during the country’s crisis. The analysis is carried out on quarterly basis during the most severe period of the crisis between 2011 and 2018 using fixed effects estimator on panel data for all of the 14 Syrian private banks. The research considers bank-specific variables calculated from the interim and annual published financial reports of all Syrian private banks, as well as a variable for the Syrian crisis measured by the following macro-factors: the Syrian Pound exchange rates against U.S. Dollar during the studied period, the number of Syrians who fled the country as refugees or asylum seekers, and the number of crisis-related casualties. Using Loans to Assets (LTA) as the dependent variable, the research results found that bank capital, deposits, bank size, funding cost, and asset quality have a significant positive effect on liquidity at 1%, while profitability has a significant negative effect on liquidity at 1%. Furthermore, the macro-variable of the Syrian crisis has a significant positive effect on liquidity at 5%. The results of this paper shed a light on liquidity determinants during crisis times which is very important to the policymakers, supervisory authorities and bank managers to take proper and timely decisions regarding liquidity in crisis periods.