Determinants of liquidity risk: The case of Turkey

The sample of this study, which aims to identify the bank-specific and macroeconomic factors determining the liquidity risk of banks, consists of the 10 largest commercial (deposit) banks operating in Turkey in terms of total assets. To identify the factors determining the liquidity risk of these banks, the liquidity ratio was used as the dependent variable, and the findings were evaluated in the context of liquidity ratio and risk. The independent variables considered to have an impact on liquidity risk are bank size, return on assets, return on equity, net interest margin, bank capital, the loan-to-deposit ratio, loan growth, non-performing loans, economic growth, inflation, and unemployment rate. However, due to unit root problems, the net interest margin variable was not included in the model. The analysis conducted using the Driscoll-Kraay standard errors fixed-effects regression method found a significant and positive relationship between the liquidity ratio and the variables of bank size, return on equity, bank capital, loan size, and economic growth. Therefore, it was determined that an increase in these variables reduces the liquidity risk of banks. On the other hand, a significant and negative relationship was found between the liquidity ratio and return on assets, the loan-to-deposit ratio, and inflation, indicating that an increase in these variables increases banks' liquidity risk. Finally, no significant relationship was found between the liquidity ratio and non-performing loans or the unemployment rate.