Socialis Series in Social Science

ISSN 2583-1585

Teoh & Kumar, 2023

Volume 5, pp. 33-50
Received: 8th September 2023
Revised: 12th September 2023, 20th September 2023
Accepted: 3rd October 2023
Date of Publication: 7th November 2023
This paper can be cited as: Teoh, S. C. & Kumar, B. C. (2023). Bank-Specific and Macroeconomic
Determinants of Banks Liquidity in Southeast Asia. Socialis Series in Social Science, 5, 33-50.
This work is licensed under the Creative Commons Attribution-NonCommercial 4.0 International License.
To view a copy of this license, visit http://creativecommons.org/licenses/by-nc/4.0/ or send a letter to
Creative Commons, PO Box 1866, Mountain View, CA 94042, USA.

BANK-SPECIFIC AND MACROECONOMIC DETERMINANTS

OF BANKS LIQUIDITY IN SOUTHEAST ASIA
Shin Chi Teoh
Centre for Postgraduate Studies and Research, Tunku Abdul Rahman University of Management
and Technology, Kuala Lumpur, Malaysia
shin.chi.teoh@spglobal.com

Bavani Chandra Kumar

Faculty of Business, Economics and Accounting, HELP University, Kuala Lumpur, Malaysia,
bavani.ck@help.edu.my

Abstract
In this paper, we investigate bank-specific and macroeconomic factors in Southeast Asia from
Malaysia, Indonesia, Philippines, Thailand, and Vietnam during the period 2011 to 2020. We
demonstrate that deposits to total assets and total loans to total assets are the major factors
determining the liquidity of commercial banks in Southeast Asia. Prior research focuses on
developed and emerging markets. Past researchers yield inconsistent results and to assess the
impact of determinants on commercial bank liquidity, this study adds the factor of the political
stability index, which has not been studied in any literature before. Bank-specific factors play a
dominant role in determining liquidity in the Philippines and Vietnam. Similarly, in Malaysia and
Thailand, liquidity is mainly influenced by bank-specific factors and GDP, while inflation and
unemployment primarily affect liquidity in Indonesia. Banks in Indonesia should consider internal
and external factors when strengthening their liquidity. Political stability has little impact in

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Southeast Asia. These findings can guide regulatory authorities in enhancing the banking sector's
resilience. Additionally, future studies may explore industry-specific determinants like interest rate
margins and rates on loans and advances.
Keywords
Bank Liquidity, Bank-Specific Factors, Macroeconomic Factors, Political Stability

1. Introduction
Liquidity is a significant indicator of insolvency. Financial institutions use the term
"liquidity" to describe their ability to meet both anticipated and unanticipated obligations in terms
of cash and collateral (Diamond & Dybvig, 1983). BIS (2008) defines liquidity as the ability of a
bank to increase assets and service debt obligations without suffering unacceptably severe losses.
Banks have enough liquidity when they consistently have sufficient capital accessible at affordable
costs to meet customer requirements. By contrast, banks will lose their solvency and eventually
fail if they do not have enough funds to meet market demand.
There are past studies examining the bank-specific determinants, especially in Europe,
and Africa (Assfaw, 2019; Tibebu, 2019; Al-Qudah, 2020; Yitayaw, 2021; Kajola, Sanyaolu, &
Alao, 2021). These studies capture debatable perspectives on the direction and relevance of the
variables. Existing studies in Southeast Asia reported the absence of bank-specific determinants
(Al-Homaidi, Tabash, Farhan, & Almaqtari, 2019; Mahmood, Khalid, Waheed, & Arif, 2019;
Umamaheswari & Prakash, 2020; Nguyen, 2022). One of the probable reasons why these studies
generate divergent outcomes is that may be the open market operations and financing structure
(Loutskina, 2011; Abdul-Rahman, Sulaiman, & Said, 2018).
Studies on Southeast Asia's commercial banking industry have generally examined
factors that influence the profitability of banks, but only limited attention has been given to
studying the liquidity of banks and its determinants. Commercial banks in Southeast Asia must
therefore be examined for their liquidity determinants. The study aimed to add new data about
Southeast Asia's present liquidity position and the macroeconomic and bank-specific factors that
influence commercial banks' liquidity. This paper attempts to answer the following research
questions to meet the objective and examine the determinants of commercial banks liquidity in
Southeast Asia, mainly Malaysia, Indonesia, Philippines, Thailand, and Vietnam:
 What impact does a commercial bank's liquidity have on its capital adequacy?

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 How does a commercial bank's liquidity change as a result of deposits?

 How does a commercial bank's profitability affect its liquidity?
 How does a commercial bank's loan to assets affect its liquidity?
 How does gross domestic product influence the liquidity of commercial banks?
 How does inflation influence the liquidity of commercial banks?
 How does unemployment influence the liquidity of commercial banks?
 How does political stability influence the liquidity of commercial banks?

2. Literature Review
The reason that researchers want to study the determinants of banking liquidity in
Southeast Asia is due to the lack of study in the countries. Most of the research is contributed to
the developed countries. There are a smaller number of academic journals or published journal
studies on commercial banks’ liquidity in Southeast Asia. Mostly, the researchers contributed to
the determinants of banks' profitability (Vejzagic & Zarafat, 2014), determinants of liquidity and
market risk of conventional and Islamic banks (Zolkifli, Samsudin, & Yusof, 2019), firm-level
determinants of liquidity in Malaysian SMEs by employed a quantile regression approach
(Wasiuzzaman, 2018), how the liquidity risk will impact to the bank performance by using return
on asset and return on equity as the dependent variables (Rahman & Saeed, 2015), macroeconomic
and bank-level determinants of liquidity of Islamic Bank in Malaysia (Dabiri, Yusof & Wahab,
2019), factors influence the liquidity risk in Islamic Banks in Indonesia and Malaysia (Anggun &
Waspada, 2018).
The relationship between bank liquidity and bank-specific and macroeconomic factors
is not conclusively determined, as literature demonstrates a divergent perspective on the direction
and relevance of the variables under the study. The researcher was motivated by an inconsistent
result of prior research on the same variables. Therefore, this study tries to examine the impact of
determinants on commercial bank liquidity by adding new variables of political stability which are
not investigated in any study yet to the author’s best knowledge. Empirical research on liquidity
risk is limited, with most studies focusing on advanced economies. Most of the studies on banking
fragility used profitability as a predictor, which was used by academics to conduct their research.
There may be no correlation between the specific bank structure variables (capitalization and loans

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to assets), but the results suggest that the variables picked can influence the risk management of
liquidity.
Even though banks' primary role is to function as a middleman in financial transactions,
most prior research failed to analyze the full impact of deposit growth on bank liquidity in any
depth. Liquidity is mostly determined by how much money customers deposit. A rapid rise in the
need for liquidity may necessitate the sale of illiquid assets at any time. By dividing the entire
assets by the total deposits. Even though deposits constitute the primary activity of banks as
financial intermediaries, there has been relatively little research on the effect of deposits on bank
liquidity.
The commercial loan theory clarifies the function of commercial lending while implying
that commercial banks must focus on commercial loans to ensure liquidity. Although most
mobilized capital has a brief or indefinite tenure, commercial banks’ capital mobilization is
ongoing, providing consecutive cash flows. Liquidity levels in banks are largely dictated by the
demand for loans, which Eakin (2008) says is the foundation for loan growth. Because short-term
loans are more profitable, banks prefer to store more liquid assets when loan demand is low.
Conversely, banks prefer to hold fewer liquid assets when loan demand is high. This finding
demonstrates that, while banks retain their liquidity ratios over minimum requirements, they must
pay special attention to their long-term loan portfolio to preserve the sector's optimal liquidity
position.
Political stability is the author’s contribution, as Chagwiza (2014) suggested that
political stability should be considered in the determining of macroeconomic variables. To the
author’s best knowledge, the political stability index is the first contribution by the author to
include as the independent variable to the determination of banks’ liquidity. Besides that, most
researchers prefer to study microeconomic factors instead of macroeconomic ones. There is a lack
of evidence to show whether macroeconomic factors such as unemployment will affect the
liquidity of a bank. Al-Harbi (2017) and Ahmad & Rasool (2017) recommended that future
research be encouraged to include the unemployment rate in the determinations of the key factors
of banks' liquidity. The research that has been conducted in this study consists of eight
independent variables which are profitability, loans over total assets, capital adequacy ratio,
deposits over total assets, gross domestic product, inflation, unemployment, and political stability
index. At the same time, liquidity will be the dependent variable in this research. Considering these

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studies' contradictory and varied conclusions, more research into determinants of liquidity is
needed.

3. Research Methodology
The sample includes all commercial banks sources from the Central Bank of each
country (Table 3.1). The annual financial data of all banks are collected from 2011 to 2020 from
each bank’s annual report. All banks with missing data, with less than 5 years of data, foreign
currency and languages are excluded from the sample. The final sample consists of 100
commercial banks, which sum up to 1,000 bank-year observations. The details of exclusion are
referred from Table 3.2.

Table 3.1: Central Bank of Malaysia, Thailand, Indonesia, Vietnam and Philippines
Country Sources
Malaysia Bank Negara Malaysia (BNM)
Singapore The Monetary Authority of Singapore (MAS)
Thailand The Bank of Thailand (BOT)
Philippines The Bango Sentral Ng Pilipinas
Vietnam The State Bank of Vietnam (SBV)
Indonesia Otoritas Jasa Keuangan (OJK)
(Source: Author’s own work)

Table 3.2: Sample Selection Process Based on Criteria

Malaysia Singapore Thailand Indonesia Vietnam Philippines
Commercial Bank 26 4 13 68 31 25
Out of sample size (2) - (1) (4) (6) (3)
Incomplete (1) (1) - (12) (5) (3)
financial reports
Financial - - - (5) - (12)
statements are not
in home currency
Financial - - - - (9) -
statements that are

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not in English
Version
Final sample 23 3 12 47 11 7
amount
88.46% 75.00% 92.31% 69.12% 35.48% 28.00%
Final Sample 100
Observation year 10
Amount of 1000
observations
(Source: Author’s own work)
A study conducted utilizing suitable data gathering instruments increases the legitimacy and worth
of research findings, according to consistent and reliable research. This study's data comes from
secondary sources. The audited financial statements of each commercial bank included in the
sample were used to collect bank-specific data, while industry and macroeconomic data were
obtained from the World Bank's Database of the Global Economy for the period from 2011 to
2020.
The authors initially intended to include the liquidity ratio of liquid assets over total
assets, as well as bank size and non-performing loans, as dependent variables in their study.
However, the authors faced challenges in obtaining data for the liquid assets from the annual
reports. The lack of specification and clarity regarding liquid assets, current assets, or assets
maturing within 0-12 months in the audited annual reports of most banks in Malaysia, Thailand,
Vietnam, Philippines, and Indonesia led the authors to exclude the liquidity ratio from their
analysis.
It is important to note that a high liquidity ratio does not necessarily indicate a company's
good performance, nor does a low liquidity ratio necessarily imply poor performance. The
underlying assumption of this liquidity ratio is that a bank's entire asset portfolio would be
liquidated to meet any stochastic withdrawal needs, which may not accurately reflect the reality of
banking institutions treating the company as a going concern. Maintaining high amounts of liquid
assets does not guarantee a bank's ability to handle unexpected withdrawals, and large volumes of
liquid assets on a bank's balance sheet may be seen as underutilization of assets. Instead, the cash
on hand could have been better utilized through investment (Chagwiza, 2014; Vodova, 2012).

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3.1. Theoretical Framework

Figure 3.3: Theoretical Framework - The Impact of Bank-Specific and Macroeconomic Factors
on Banks’ Liquidity in Southeast Asia

Independent Variables Dependent

Bank Specific Factors

 Capital Adequacy
Ratio (CAR)
 Deposit (DEP)
 Return on Asset
(ROA)
 Total loans over total Banks’ Liquidity
assets (TLA)

Macroeconomic Factors LIQ = Total Loans/ Total Deposits

 Annual GDP Growth

(GDP)
 Inflation (CPI)
 Unemployment
(UNEM)
 Political Stability
Index (POL)

(Source: Author’s own work)

3.2. Model Specification
The panel regression analysis technique is used to test the effect of independent
variables, which are loans to assets, probability, capital adequacy ratio, deposit, gross domestic
product, inflation, unemployment, and political stability index on the dependent variables, namely
liquidity ratio of total loans over total deposits using the EViews 12 test tool. The first step is to
determine the best model between the Common Effect Model (CEM), Fixed Effect Model (FEM),
and Random Effect Model (REM) through the Chow Test, Hausman Test and Lagrange Multiplier
Test. The panel regression equation model is as follows:
𝐿𝐼𝑄𝑖𝑡 = 𝑎𝑖𝑡 + 𝛽1 𝐶𝐴𝑅𝑖𝑡 + 𝛽2 𝐷𝐸𝑄𝑖𝑡 + 𝛽3 𝑅𝑂𝐴𝑖𝑡 + 𝛽4 𝐿𝑇𝐴𝑖𝑡 + 𝛽5 𝐺𝐷𝑃𝑖𝑡 + 𝛽6 𝐶𝑃𝐼𝑖𝑡 + 𝛽7 𝑈𝑁𝐸𝑀𝑖𝑡

+ 𝛽8 𝑃𝑂𝐿𝑖𝑡 + 𝜀𝑖𝑡

Where:

𝑳𝑰𝑸𝒊𝒕 = total loans over total deposits

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𝒂 = constant

𝜷 = Regression Coefficient

𝑪𝑨𝑫𝑬𝑸𝒊𝒕 = Capital Adequacy Ratio

𝑫𝑬𝑷𝒊𝒕 = Deposit

𝑹𝑶𝑨𝒊𝒕 = Return on Asset

𝑳𝑻𝑨𝒊𝒕 = Loans to Assets

𝑮𝑫𝑷𝒊𝒕 = Gross Domestic Product

𝑪𝑷𝑰𝒊𝒕 = Inflation

𝑼𝑵𝑬𝑴𝒊𝒕 = Unemployment

𝑷𝑶𝑳𝒊𝒕 = Political Stability Index

𝜺𝒊𝒕 = Error term

Empirical literature typically studies bank-specific determinants using a panel model (Cucinelli,
2013; Malik and Rafique, 2013; Chagwiza, 2014; Leykun, 2016; Singh and Sharma, 2016; Shah,
Khan, Shah, Tahir, 2018; Assfaw, 2019; El-Chaarani, 2019; Al-Qudah, 2020). Therefore, we
estimate the following baseline panel regression analysis. Statistical techniques included the Fixed
Effect Model, Random Effect Model and Pooled Ordinary Least Square (POLS) by using the
Chow test, Hausman test and Lagrange Multiple Test (LM Test). Chow test was conducted to
determine the best model among fixed effect and common effect, the Hausman test to determine
the best model among fixed effect and random effect, LM Test was conducted to determine
whether REM is better than the common effect (PLS) method used. Table 3.4 summarizes the
model that will be employed by each of the countries after the Chow Test, Hausman Test and
Lagrange Multiplier Test.

Table 3.4: Summary of Statistical Model

Country Chow Test Hausman Test Lagrange Multiplier
Test
Malaysia H0 rejected H0 failed to reject H0 failed to reject
Fixed Effect Model Random Effect Random Effect Model
Model

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Indonesia H0 rejected H0 failed to reject H0 failed to reject

Fixed Effect Model Random Effect Random Effect Model
Model
Philippines H0 rejected Number of Cross Sections < Number of Coefs,
Fixed Effect Model unable to generate random effects estimation

Thailand H0 rejected H0 failed to reject H0 failed to reject

Fixed Effect Model Random Effect Common Effect Model
Model
Vietnam H0 rejected H0 failed to reject H0 failed to reject
Fixed Effect Model Random Effect Common Effect Model
Model
(Source: Author’s computation using EViews 12)

Table 3.5 lists the variables and their definitions. Liquidity Ratio are computed as the proportion
of total loans over total deposits and denoted as 𝐿𝐼𝑄𝑖𝑡 . The capital adequacy ratio is computed by
total equity over total assets as the independent variables and denoted as 𝐶𝐴𝑅𝑖𝑡 . Followed by
deposit denoted as 𝐷𝐸𝑃𝑖𝑡 derived from total deposits over total assets. Profitability proxy by net
income over total assets denoted as 𝑅𝑂𝐴𝑖𝑡 . The fourth independent variables of loans to assets
denoted are as 𝐿𝑇𝐴𝑖𝑡 . For bank-specific factors, data are hand collected from published annual
reports on the bank's website. The World Bank and The Global Economy provide data for
macroeconomic factors.
Table 3.5: Description of Variables
Variables Descriptions
LIQ Liquidity Ratio (total loans over total deposits)
CAR Capital adequacy ratio (total equity/ total assets)
DEP Deposits (total deposits/ total assets)
ROA Profitability (net income/ total assets)
LTA Loans to Assets (total loans over total assets)
GDP Gross domestic product (current US$)
CPI Consumer Price Index
UNEM Unemployment Growth Rate (%)
POL Political Stability Index (values between -2.5 and +2.5)
(Source: Author’s own work)

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4. Results and Discussions

The findings of this study are presented and discussed in this chapter. The data analysis
will be carried out accordingly on 5 countries namely, Malaysia, Indonesia, Philippines, Thailand
and Vietnam.
Table 4.1: Regression results for bank-specific and macroeconomic determinants of Bank
Liquidity in Southeast Asia
Malaysia Thailand Indonesia Philippines Vietnam
LIQ REM PLS REM FEM PLS

Constant -7.3865 10.5855* 12.6942*** 1.2035 1.9800

(-1.5595) (1.9295) (2.8459) (1.0129) (1.1597)
[0.1203] [0.0562] [0.0046] [0.3156] [0.2489]
CAR -0.7211*** 1.5344** 0.1207 0.6184*** -0.2170
(-6.2391) (2.3376) (-1.6198) (3.5162) (-0.8700)
[0.0000] [0.0212] [0.1060] [0.0009] [0.3864]
DEP -1.7692*** -2.4002*** -2.1102*** -0.2742*** -0.7332***
(-17.3135) (-18.3104) (-42.1872) (-5.7376) (-13.0481)
[0.0000] [0.0000] [0.0000] [0.0000] [0.0000]
ROA 2.9883* -3.5826 -0.1820 1.0459 3.1928**
(1.7771) (-1.3104) (-0.5547) (1.3523) (2.3910)
[0.0769] [0.1928] [0.5793] [0.1818] [0.0001]
LTA 2.0187*** 1.9129*** 1.8830*** 1.3977*** 1.1577***
(21.4787) (11.3598) (39.7820) (17.2799) (16.1721)
[0.0000] [0.0000] [0.0000] [0.0000] [0.0000]
GDP 0.3140* -0.3479* -0.4008** -0.0415 -0.0491
(1.7690) (-1.7378) (-2.5795) (-0.9239) (-0.7406)
[0.0783] [0.0850] [0.0102] [0.3596] [0.4606]
CPI -0.2749 -0.0209 -1.4050** 0.0280 -0.1095
(-0.2383) (-0.2992) (-1.9721) (0.0836) (-0.4879)
[0.8118] [0.7654] [0.0492] [0.9337] [0.6267]
UNEM 2.1655 -1.0396 -5.0368* -0.6616 -2.3734
(0.6621) (-0.0828) (-1.7822) (-0.6507) (-1.0773)
[0.5086] [0.9342] [0.0754] [0.5179] [0.2839]
POL -0.1732 0.0426 0.1228 0.0028 0.05975
(-1.5531) (0.3358) (-1.5192) (0.1408) (0.8554)
[0.1218] [0.7376] [0.1294] [0.8886] [0.3944]

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R-squared 0.7695 0.8708 0.8336 0.9834 0.8016

Adjusted R- 0.7612 0.8615 0.8307 0.9792 0.7858
Squared
F-statistic 92.2441*** 93.5176*** 288.6293**** 232.7451*** 50.9937***
[0.0000] [0.0000] [0.0000] [0.0000] [0.0000]

Durbin-Watson 1.1044 1.1424 0.8711 1.8904 0.9735

stat
BreuschPagan LM 11.0066 3.7378 11.0066 8.4358 12.9569
Test (0.0000)*** (0.0007)*** (0.0000)*** (0.0000)*** (0.0000)***
Serial Correlation 21.5037 1.5392 21.50369 5.0695 6.8954
(0.0000)*** (0.2192) (0.0000)*** (0.0093)*** (0.0016)****
Observations 230 470 120 70
110

(Source: Author’s computation using EViews 12)

As shown in Table 4.1 an adjusted R-squared coefficient of 76.12%; 86.15%; 83.07%; 97.92%
and 78.58% was obtained from the estimated model for Malaysia, Thailand, Indonesia, Philippines
and Vietnam respectively revealing that 76.12%; 86.15%; 83.07%; 97.92% and 78.58% of the
variables for liquidity (LIQ) is explained by the selected explanatory variables Capital Adequacy
(CAR), Deposit Growth (DEP), Profitability(ROA), Loans to assets (LTA), Gross Domestic
Product (GDP), Inflation (CPI), unemployment (UNEM) and political stability index (POL). The
R-square result makes sense because there might be other factors which are not included in the
model but could help in explaining liquidity in commercial banks of Southeast Asia. Those factors
can account for the remaining 23.88%; 13.85%; 16.93%; 2.08% and 21.42% for Malaysia,
Thailand, Indonesia, Philippines and Vietnam respectively.

Malaysia
Capital adequacy and deposits would have a positive impact on the Malaysian Banking
sector. BNM can enhance the capital adequacy ratio to enhance the liquidity as greater capital can
raise the bank liquidity. Bank management shall propose a variety of attractive deposit products to
attract depositors to credit their money. High profit will diminish the level of liquidity. Hence,
banks should strike a balanced level of profitability and liquidity to ensure the smoothness of
operation. Loans would diminish the liquidity as well as the primary business transaction of the

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business, when the more the loan had been lent out the bank would face the liquidity risk from the
bank run deposit from depositors if any unexpected circumstance happened.

Thailand
Deposits and loans are the primary sources and determinants of liquidity for commercial
banks, which are financial intermediaries that convert surplus to deficit. Capital adequacy and
loans are negative to determinants of bank liquidity whereas deposits and GDP will enhance the
liquidity level of Thailand.

Indonesia
Commercial banks as the financial intermediate that transform surplus to deficit units
bring the significant relationship that deposits and loans are the primary sources that affect the
banking liquidity. Macroeconomic factors are less likely to impact Southeast Asia as only
Indonesia is impacted by economic growth, inflation, and unemployment. This might be due to
the economic level of Indonesia, which is the top-ranking in Southeast Asia and the 15th-largest
economy in the world. Hence, the largest economy will be more sensitive to the changes in the
macro economy.

Philippines
In Philippines, only loans to assets and capital adequacy have a negative relationship to
the determinants of bank liquidity while deposits demonstrate an inverse relationship with banking
liquidity. Profitability and macroeconomics will not bring any significant impact on the liquidity
of banking in Philippines. The Bangko Sentral Ng Pilipinas should take note of the requirement of
granting a massive amount of loan to prevent the excessive approved loan that might have
consequences to the liquidity level of the bank.

Vietnam
The results from Vietnam in this study align with the latest researcher, Nguyen (2022).
The deposit has a negative significant impact on bank liquidity in Vietnam where loan to asset
shows positive significance to the determinants of bank liquidity in Vietnamese commercial banks.
Nevertheless, the findings of trade-off relationships in Vietnam are also backed by Tran, Nguyen,
Nguyen and Tran (2019) and Nguyen (2022). Macroeconomic variables have no empirical
evidence that will affect the determinants of bank liquidity in Vietnam. This study also supports

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Nguyen and Vo (2021) that capital adequacy, gross domestic product, and inflation did not impact
the liquidity of commercial banks in Vietnam and profitability does have a positive significant
impact on the determinants of bank liquidity.

5. Conclusion
This study, to the best of the author’s knowledge, is the first to investigate the
determinants of commercial bank liquidity in Southeast Asia that covers more than one country in
the sample, mainly Malaysia, Thailand, Indonesia, Philippines and Vietnam. The study considers
four bank-specific factors, four macroeconomic factors and different variables reflect that different
statically significant results for each country. Based on the empirical findings, it can be concluded
that loans to assets and deposits are the most significant determinants of bank liquidity in all the
countries. The current study contributes to the literature by examining factors influencing liquidity
in commercial banks in Southeast Asia, which is valuable to banks in Southeast Asia to manage
liquidity risk and determine suitable liquidity conditions.
The study identifies several similarities and differences among empirical results on the
five countries in Southeast Asia by using panel data regressions. The most outstanding similarity
is that all countries record a significantly positive relationship between deposit and bank liquidity
and a negative relationship with loans to assets as predicted. The loans-to-assets ratio has a strong
negative correlation with determinants of liquidity. This form of risk like credit risk causes the
bank's liquidity to dry up, which in turn diminishes the liquidity level and threatens the long-term
viability of banks. This result confirms H4 which assumes loan activities are heavily exposed to
liquidity risk. The basic role of balance sheet intermediation, centered primarily on the provision
of credit and the collection of deposits, must therefore be re-evaluated by banks.
Likewise, the significantly negative influence of profitability to on liquidity is found in
Malaysia and Vietnam, however there is no significant effect in Thailand, Indonesia and
Philippines. While the capital adequacy ratio only significantly impacts Malaysia, Thailand and
Philippines and does not contribute to the determinants of liquidity in Indonesia and Vietnam.
Macroeconomic factors are less likely to impact Southeast Asia as only Indonesia is
impacted by the economic growth, inflation, and unemployment. This might be due to the
economic level of Indonesia, which is the top-ranking in Southeast Asia and the 15th-largest
economy in the world (Research FDI, 2021). Hence, the largest economy will be more sensitive

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to the changes of the macroeconomy. GDP also determines the bank liquidity in Malaysia and
Thailand whereas they do not contribute to the determinants of liquidity in Vietnam and
Philippines. Furthermore, inflation and unemployment have no impact on the bank liquidity of
Malaysia, Thailand, Philippines and Vietnam. Lastly, the political stability index is insensitive to
the banking liquidity in Southeast Asia.
Findings suggest that the liquidity of the banks is more affected by bank-specific factors.
It is possible to improve a bank's liquidity by focusing on the highlighted factors since the
management of the banks has control over the bank-specific characteristics.

5.1. Limitations of the Study and Future Research Direction

First, this study did not cover Brunei, Cambodia, Laos, Myanmar, and Timor-Leste
which are in the Southeast Asia Region due to the accessibility to the annual report and Singapore
had been excluded due to the multicollinearity problem. Future researchers can extend their topic
into more countries like the ASEAN region etc. Other than that, a comparison between developed
and developing countries can be carried out as well.
Second, there are other variables which were not included in the models due to the
unavailability of data such as non-performing loans and liquid assets. Bank size had been excluded
as this study covers 5 countries that apply 5 currencies, and authors are unable to convert it to the
standardized currency as some of the banks might have different financial year endings in March,
June, September, and December. Hence, this poses a challenge for authors to include bank size as
one of the independent variables to test the relationship between the banks’ liquidity for the six
countries. Moreover, different home currencies will result in biased or misleading results due to
the value of their currencies and lead to incomparable situations which is not fair to compare MYR
1 billion with THB 1 billion.
The liquidity ratio in the study might not always capture all liquidity, but it is widely
used as it is easy to calculate and interpret (El Khoury, 2015). Hence, it is suggested that using
liquidity coverage ratio and net stable funding ratio be provided by the Basel Committee.

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