Journal of Applied Finance & Banking

What drives the liquidity position of foreign-owned banks? The case of Poland

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  • Abstract

    The study investigates the drivers of the liquidity position of foreign-owned banks based on a sample of Polish commercial banks during the years 2004-2014. The main aim of this research is to identify the factors influencing the changes in the liquidity position of foreign-owned banks, with a special interest in the bank specific factors of their parents as well as the macroeconomic conditions and market characteristics of the home countries. Bank-specific factors and the macroeconomic conditions and market characteristics of the host country have also been taken into account. The study reveals that the liquidity position of foreign-owned banks was mostly driven by changes in the profitability of households’ loans in the host country, the expected cash flows of the banks, the credit supply of the banks and the capital adequacy of the parent banks. In addition, the results of the pooled ordinary least square regressions indicate that the changes in the liquidity position of the foreign-owned banks were partly driven by the changes in private sector indebtedness in the host country, the relative importance of these banks within the groups’ structures and the profitability of the parent banks (these findings are relevant for the dependent variable, which is defined as liquid assets that are inclusive of interbank loans relative to the total assets), and the changes in the credit quality of the banks, as well as the credit quality of the home countries’ banking sectors (these findings are relevant for the dependent variable, which is defined as liquid assets that are exclusive of interbank loans relative to the total assets). The link with the changes in the macroeconomic conditions and market characteristics of the home countries proved to be the weakest among the examined factors.