Internal and external factors determining banks' liquidity risk: An application for the Turkish banking system

As one of the most important components in the financial system, banks are crucial for economic sustainability through a variety of functions which they perform directly or indirectly, particularly through financial mediating. For the success of the national economy and welfare, it is important to have a banking system which has a robust capital structure, provides efficiency, competitive financial market and developed in terms of internal control and audit infrastructure. Directly and indirectly affected by developments in both the global and national economies, financial institutions continue their activities by being exposed to certain risks. In this context, it is important to determine the risks they experience and how to manage them in terms of providing financial stability and sustainability of their activities. In the study, internal (bank-specific) variables and external (macro-economic) variables affecting liquidity risk in commercial and participation banks operating in the Turkish banking sector were used. Quarterly data of 19 commercial banks and 4 participation banks operating in Turkey, for the period 2015/12 and 2021/9 were analyzed through static panel data analysis method. In the study, as an indicator of liquidity adequacy, the Liquidity Coverage Ratio calculated by the banks within the scope of the Basel Accord was preferred as the dependent variable. The Covid-19 pandemic, which has affected national economies on a global scale, has been added to the model as a control variable in order to see the effects on the liquidity level of the Turkish banking system. As a result of the analysis, within the scope of the sample which consists of conventional banks and participation banks, the liquidity level of the Turkish banking system has statistically significant relationship with deposits, loan deposit ratio, return on equity, capital adequacy ratio, equity and asset size and macroeconomic factors such as money supply, credit default swap and control variable Covid-19.