MA Thesis

Determinants Of The Banking System Liquidity: The Case Of Ukraine



Published in:

Kyiv School of Economics
banking system liquidity

Banks have a crucial function in the economy as intermediaries serving different economic sectors. The performance of the banking system has a considerable impact on economic growth. It serves as the primary source of funds for the general public, businesses, governments and the industrial sector. Countries with a thriving and profitable banking sector are adept in managing financial hardships and upholding the stability of the financial sector. Thus, it is imperative to identify and analyze the key factors influencing the profitability of banks. (Bilal, Ali Gull Toquer Akram, 2013) Furthermore, banks have a pivotal role in creating and managing the money supply. Through fractional reserve banking, they have the ability to lend a portion of the deposits they receive, creating currency in the form of credit. The accessibility of money and credit supply has a direct impact on inflation, interest rates, as well as economic activity. Banks face diverse risks, including liquidity risk, the risk of obtaining cash to fulfill funding obligations. Understanding the factors that influence liquidity helps banks to assess and manage these risks, develop liquidity management strategies, as well as to maintain sufficient reserves and adapting to changing economic conditions. Hence, the objective of this research is to determine the impact and significance of bank related and macroeconomic factors on the liquidity of the Ukrainian banking system. This study is important for understanding the operations of the banking sector, assessing the health of the financial system, making informed decisions, and formulating effective policies. We carried out this analysis by curating a linear regression which included liquidity as the dependent variable and the bank-related and macroeconomic factors as independent variables. We found that the variable that influences the liquidity of the banking system the most is the marginal rate of interest.