The Factors Affecting Liquidity Risk of Commercial Banks in Malaysia


  • Yeoh Sze Jia
  • Ng Hui Chen
  • Gunaseelan AL Kannan


[Background]Recent global financial crisis has shed a light on the importance of liquidity management of commercial banks. Liquidity risk, a risk arising from maturity mismatch of assets and liabilities of the banks could result in bank panic that will cost tremendous loss to the economy of the country if not properly handled. As the liquidity risk will impact the nation’s economic well-being, it is of paramount importance to study the factors affecting liquidity risk of commercial banks in Malaysia.

 [Objective] The purpose of this paper is to investigate the determinants that are affecting the liquidity risk of commercial banks in Malaysia.

 [Methodology] Four economic factors namely unemployment rate, Gross Domestic Product (GDP), inflation, interest rate and one non-economic factor, management efficiency have been selected to test the association. The data from year 1996 to 2015 and all commercial banks were chosen. Multiple linear regression together with three other different tests namely normality test, linearity test and multicollinearity test were employed to test the relationship of the independent and dependent variables. 

 [Results] The findings show that GDP is negatively related to liquidity risk. This implies that higher GDP growth may increase the liquidity risk of commercial banks in Malaysia. At the same time, there is weak evidence to support the notion that inflation rate, unemployment rate, interest rate and management efficiency impact banks’ liquidity.

 [Discussion] Policymakers must take into account the impact of GDP growth in formulating liquidity risk management framework for commercial banks in order to ensure stability and sustainability of financial system in Malaysia. 

 Keywords: Liquidity Risk, GDP growth, Bank Panic