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Procedia Economics and Finance 20 (2015) 571 – 579

7th International Conference on Globalization and Higher Education in Economics and Business
Administration, GEBA 2013

The impact of bank-specific factors on the commercial banks

liquidity: empirical evidence from CEE countries
Angela Romana,*, Alina Camelia Sargub
a,b
„Alexandru Ioan Cuza” University of Iasi, Bd. Carol I, no. 11, Iasi 700505, Romania

Abstract

The recent economic and financial crisis has had a tremendous impact on the banking system, raising key questions about
liquidity risk. Its management is seen to be of paramount importance, receiving great attention from policymakers, researchers
and practitioners, taking into consideration that a liquidity shortage at a single so called “too big to fail” financial institution can
lead to systemic contagion and instability. In this context, the aim of the paper is to analyse a significant issue that needs to be
tackled when promoting financial stability, more exactly the determinants of the liquidity risk of a sample of banks operating in a
series of CEE countries (Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania), reviewing at the same
time the progresses made in certain key areas and the remaining challenges. We considered bank specific factors over the period
2004-2011 and examined them employing an OLS regression analysis. The results of our research highlighted the negative
impact that the depreciation of the loans portfolio had on the overall liquidity of the analysed banks.
© 2015
© 2014 The
TheAuthors.
Authors.Published
PublishedbybyElsevier
Elsevier B.V.
B.V. This is an open access article under the CC BY-NC-ND license
Selection and peer-review under responsibility of the Faculty of Economics and Business Administration, Alexandru Ioan Cuza
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
University of
Peer-review Iasi.responsibility of the Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iasi.
under

Keywords: CEE commercial banks; liquidity; regression analysis; financial crisis

1. Introduction

The 2007–08 financial crises raised the issue of better understanding the challenges posed by bank liquidity risk
management and highlighted the importance of liquidity for the adequate functioning of the financial markets and
the banking sector in particular (Bank for International Settlements, 2010; Bank for International Settlements, 2013).

* Corresponding author. Tel.: +40-741-244-481.

E-mail address: aboariu@uiac.ro

2212-5671 © 2015 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iasi.
doi:10.1016/S2212-5671(15)00110-0
572 Angela Roman and Alina Camelia Sargu / Procedia Economics and Finance 20 (2015) 571 – 579

This topic has been a focus of regulatory and supervision institutions such as the European Systemic Risk Board at
the European Union level and different national and international financial stability institutions at the global level,
key aspects of recent regulatory reform being provided by the Basel III framework. Therefore, Basel III intended to
address the vulnerabilities that triggered the financial crisis - among which the large exposure of banks to liquidity
risk - through strengthening bank capital and liquidity standards and promoting thus a more resilient banking sector
(De Waal et al., 2013; Petersen et al., 2013).
In the case of the Central and Eastern European - CEE - countries, the banking sector has registered tremendous
transformations over the last years on the background of the financial integration and innovation process. On the one
hand, there were transformations with a positive impact, especially before 2008, the banks operating in the CEE
countries recording an expansion of their business, sophistication and diversification of their products and services
and an increase of their territorial network (Buch and Heinrich, 2003). Notwithstanding, in the context of the global
financial crisis, liquidity risk problems emerged due to extreme loan-to-deposit ratios, excessive credits
denominated in foreign currency granted to households based on deposits attracted in domestic currency or to a
continue funding need from their parent banks (Lehmann et al., 2011). The decrease in funding liquidity then
caused an important distress and the frozen of the interbank market. In order to restore the financial stability,
successive liquidity support was granted by ECB and FED, mainly through bank deposit guarantees and short-term
loans to banks (Orlowski, 2008) and when these measures started to be inefficient unprecedented actions needed to
be taken, such as unconventional monetary policy measures. Hence, the global financial and economic crisis
highlighted once more the importance of proper liquidity risk management.
In this context, the aim of our research is therefore to analyse the relationship between different bank features,
more exactly the impact of a series of financial indicators like the capital adequacy, assets quality, management
quality and profitability on the liquidity risk of a sample of banks operating in a series of CEE countries (Bulgaria,
the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania), over the period 2004-2011. The research
contributes thus to the literature on the topic thorough reviewing the progresses made in certain key areas of
liquidity risk management by the seven analysed CEE banking sectors and the remaining challenges. Nevertheless,
our research addresses an up-to-date topic which is of concern to regulators, researchers and practitioners, being of
paramount importance especially in a crisis environment.
The remainder of the paper is organized as follows: the second section is dedicated to a review of the relevant
literature regarding the determinants of liquidity, the third section presents the data and methodology employed in
order to carry out the empirical analysis, the forth section is focused on the empirical findings while the fifth section
presents the concluding remarks.

2. Literature review

Taking into account the serious implication for the overall macroeconomic and financial stability, the topic
regarding bank liquidity risk management has always been significant in the academic literature, many authors
(Diamond and Dybvig, 1983; Molyneux and Thornton, 1992; Bangia et al., 1999; Diamond and Rajan, 2001; Allen
and Gale, 2004; Kosmidou, 2008; Drehmann and Nikolaou, 2009; Bissoondoyal-Bheenick and Treepongkaruna,
2011) addressing this subject in their papers. As the financial crisis of 2007 unfolded, scholars, professionals and
policy makers, such as the Basel Committee, BIS, the national central banks, have granted an increasingly interest to
this theme.
The literature on the determinants of liquidity risk is relatively scarce, in general, the empirical researches being
focused mostly on the case of the advanced economies. For example, the research of Bonfim and Kim (2012)
highlights how a sample of European and North American banks manage liquidity risk, over the period 2002-2009.
In particular, the research investigates whether banks tend to take more risks in a crisis period and if they follow
similar strategies. The results provide important insights for regulators, suggesting that banks have a collective
behaviour in the pre-crisis period, reflected in a global deterioration of liquidity indicators and that collective risk
taking incentives are focused mainly among the largest banks worldwide. A more recent example is the research of
Cucinelli (2013), undertaken on the banking system from the Euro area countries and investigating the
interconnection between liquidity risk and a series of bank structure variables, in the attempt of determining which
are the variables that impact the two new indicators recommended by the Basel Committee, more exactly the
 Angela Roman and Alina Camelia Sargu / Procedia Economics and Finance 20 (2015) 571 – 579 573

liquidity coverage ratio and the net stable funding ratio. The results emphasis that the selected variables can have an
impact on liquidity risk management, because even if the specific bank structure variables (size, capitalization,
assets quality and specialization) do not highlight always a relationship with both liquidity indicators, the
relationship is present at least in one case.
In the case of the Central and Eastern European Union member countries the literature centred on this subject is
less developed, existing however a series of recent studies that are trying to address this issue in various ways. For
instance, Vodovà (2012), using a panel data regression analysis, attempts to identify the liquidity determinants of
commercial banks in Poland. The results pinpoint that liquidity tends to decrease with the size of the bank, more
exactly large banks tend to hold less liquid assets, relying on a liquidity assistance of the lender of last resort in case
of distress, while small and medium sized banks hold more liquid assets. On the other hand, the research
demonstrates that the inflation, increases in capital adequacy, share of non-performing loans have a positive impact
on bank liquidity.
The research of Horvàt et al. (2012), on Czech banks examines the relation between capital and liquidity creation,
by carrying out a series of Granger-causality tests, over the period 2000-2010. The conclusions of the paper support
the idea that the requirements of Basel III can lead to the decrease of liquidity creation, but on the other hand that
greater liquidity creation can reduce banks’ solvency, leading thus to a trade-off between the benefits of financial
stability generated by stronger capital requirements and the benefits of greater liquidity creation. Taking all this into
account, we can conclude that the exposure to risk liquidity is lower for the banking institutions that create less
liquidity on the market.
Considering all this issues, our research contributes to the existing literature on the topic of liquidity risk and its
determinants by analysing the relationship between different bank features, more exactly the impact of a series of
financial indicators like the capital adequacy, assets quality, management quality and profitability on the liquidity
risk of a sample of banks operating in a series of CEE countries (Bulgaria, the Czech Republic, Hungary, Latvia,
Lithuania, Poland, Romania).

3. Data and methodology

In order to calculate the liquidity of the analysed banks we have employed a very common indicator represented
by the ratio of loans to total assets. Taking into account the cross-border component of our research, we have
considered that this indicator answers better to our needs, the ratio of loans to total assets being very easy to be
calculated for all the banks from our sample (equation 1).

total loans
Liquidity indicator (1)
total banking assets

The academic literature on this subject (e.g. Vodovà, 2012) considers alongside this ratio also the ratio of liquid
assets to total assets as the most popular indicator for bank liquidity.
In order to determine the evolution of the analysed banks liquidity, we have chosen six internal indicators (one
capital adequacy indicator, one assets quality indicator, one management quality indicator, two profitability
indicators and total assets / total sector assets for the bank size). We have chosen these six indicators as they can be
influenced through the business strategy adopted by the banks, thus being under the direct control of the
management team. Thus, we are able to underline also how business decisions influence the overall liquidity of a
bank.
In order to ensure the comparability of the obtained results, we have chosen for our sample only the commercial
banks located in the analysed countries. The data used have been obtained from the Bureau Van Dijk Bankscope
database and the unconsolidated financial statements of the banks from our sample. The comprehensiveness of our
study is twofold. Thus on the one hand, the analysed period is 2004-2011, covering the pre and post EU ascension
period and also the impact and aftermath of the global financial and economic crisis and the first stages of the EU
574 Angela Roman and Alina Camelia Sargu / Procedia Economics and Finance 20 (2015) 571 – 579

sovereign debt crisis. This will allow us to have a very comprehensive look on the evolution of the analysed banks
liquidity and also on the impact that the chosen six factors had on it, in a crisis environment. On the other hand, the
banks from our sample own together over 2/3 of the total banking assets of the analysed countries making our
sample one of the largest to be used in such a type of analysis.
The chosen sample of banks is composed from: 11 banks from Bulgaria, 14 banks from Czech Republic, 8 banks
from Hungary, 7 banks from Lithuania, 16 banks from Latvia, 15 banks from Romania and 15 from Poland. The
summary statistics for the liquidity indicator and the chosen six internal indicators are presented in table 1.

Table 1. Descriptive statistics of the variables used in our research

Liquid TCR ILTL IED ROAE ROAA TATSA
2005
average 25.59 19.75 4.47 5.95 16.06 1.52 4.42
median 20.13 14.37 2.75 3.31 16.84 1.43 1.09
std.dev. 21.47 17.11 4.82 12.52 10.35 1.12 7.23
min 2.15 8.28 0.02 0.14 -19.13 -4.08 0.00
max 137.59 121.16 28.88 110.53 54.32 4.31 33.69
2007
average 22.10 15.11 3.62 4.69 17.31 1.57 5.27
median 18.58 13.06 2.40 3.46 17.14 1.41 2.13
std.dev. 16.50 9.40 3.43 3.79 10.47 1.03 7.40
min 1.92 8.31 0.07 0.53 -8.58 -0.98 0.00
max 113.70 84.55 20.82 22.32 62.22 5.80 31.45
2009
average 23.87 16.33 10.55 4.30 -5.28 -0.26 4.65
median 20.28 13.92 7.22 3.83 4.52 0.34 1.18
std.dev. 17.71 10.04 11.25 2.67 31.64 2.35 7.59
min 0.76 6.80 0.10 0.01 -131.68 -8.72 0.00
max 91.12 90.37 79.10 12.82 29.44 2.92 34.28
2011
average 28.26 16.85 14.79 2.80 -4.87 0.02 4.23
median 25.57 14.58 12.34 2.70 6.19 0.66 1.38
std.dev. 20.49 9.62 12.95 1.87 47.75 2.49 6.75
min 0.02 2.37 0.10 0.01 -298.10 -10.94 0.00
max 109.32 61.02 79.10 12.38 35.26 3.12 33.74

Note: Liquid - the calculated liquidity indicator; TCR - total capital ratio; ILTL – the ratio of impaired loans to total loans; IED
- the ratio of interest expenses to total deposits; ROAE - return on average equity; ROAA - return on average assets; TATSA -
the share of the total banking system assets.
Source: authors’ calculations

After analysing the data displayed in table 1 a few quick conclusions can be drawn. Regarding the liquidity
indicator we can observe that until the start of the global crisis its values are registering a decreasing trend, while
after the start of the crisis and on a background of a depressed macroeconomic environment the analysed banks
increased their overall liquidity. This can be attributed especially to the tightening of the banking regulation both at
national and European level.
In the case of total capital ratio, the values registered have decreased since the start of the analysed period,
although as a result of the tightening of the banks regulations, since 2008 a small amelioration has been registered.
 Angela Roman and Alina Camelia Sargu / Procedia Economics and Finance 20 (2015) 571 – 579 575

Unfortunately the existing of a depressed macroeconomic environment in most of the analysed countries and the
deepening of the sovereign debt crisis has led to a new decrease of the total capital ratio toward the end of the
analysed period.
The ratio of impaired loans to total loans has registered a very steep increase as a result of the international
financial crisis start and especially of the macroeconomic environment depreciation of the analysed countries. The
sharpest increase of the impaired loans to total loans ratio has been registered by Romania, Bulgaria and the two
Baltic states.
The ratio of interest expenses to total deposits has registered a continuous decrease since the start of the analysed
period, with the exception of the year 2008. The decrease of this ratio has been determined by two different reasons.
Thus, on the one hand, before 2008, the credit expansion period registered in the analysed countries droved loans
interest rate down, implicitly decreasing the deposits interest rates. After 2008, the aggressive policies implemented
by the national governments in order to stimulate the loaning process and the relaxed monetary policy adopted by
the national banks of the analysed countries have pushed the interest rates of the deposits even lower. The exception
registered in 2008, is determined by the implementation of the new prudential measures by the regulatory and
supervision authorities of the banking sectors, which determined banks to attract more deposits from the market in
order to improve their overall liquidity.
Regarding the evolution of the profitability indicators, it underlines very well the depreciation of the national
macroeconomic environment as the international financial crisis deepened and the EU sovereign debt crisis started.
The depreciation of the profitability indicators has been extremely deep, their average value becoming negative for
the period 2009 - 2011.
Nevertheless, the size of the analysed banks has slightly decreased during the analysed period of time, except for
2007. During this year in most of the analysed countries a consolidation phase took place, large banks acquiring
more new clients in the dawn of the international financial crisis. After the start of the international financial
turbulences and the downturn of the national economies, banks clients tried to find the safest bank for their savings,
larger banks losing market share in favour of the smaller more clients orientated banks. This explains the downward
trend in the size of the analysed banks after 2007.
In order to underline the impact of the business strategy adopted by the analysed banks on their liquidity we have
chosen six internal indicators. Thus we have employed an ordinary least squares regression analysis (OLS), the
model used being expressed as follows:

Liquid Į  TCR  ILTL  IED  ROAE  ROAA  TATSA  İ (2)

it it it it it it it it

where: Liquidit is the calculated liquidity indicator for bank i in period t, Į is the constant, TCRit is the total
capital ratio for bank i in period t, ILTLit represents the ratio of impaired loans to total loans for bank i in period t,
IEDit is the ratio of interest expenses to total deposits in the case of bank i for period t, ROAEit is the return on
average equity for bank i in period t, ROAAit is the return on average assets in the case of bank i for the period t,
TATSAit represents the share of the total banking system assets owned by bank i in period t and İit is the error.
A high total capital ratio will impact negatively the bank, as shareholders will pressure the management of the
bank to make more profitable investments or to grant more loans with high interest rates. A reasonable value of the
total capital ratio, not to high above the legal limit will ensure that the management does not face additional pressure
from the shareholder in order to increase the average returns of the banks and will also ensure the existence of an
adequate liquidity level.
An increase of the impaired loans to total loans ratio is expected to impact negatively the overall liquidity of a
bank, as liquid assets turn illiquid. Implicitly, a decrease of the impaired loans to total loans ratio will tend to
increase the overall liquidity of a banking institution. Especially in our case, as more loans become impaired, the
bank will tend to decrease its loaning operations until it can change the negative trend, this leading to a decrease of
the ratio of loans to total assets.
576 Angela Roman and Alina Camelia Sargu / Procedia Economics and Finance 20 (2015) 571 – 579

As the bank is able to attract deposits at a lower rate, implicitly it will be able to engage in extensive loaning
operations, thus the ratio of total loans to total assets increasing (the liquidity level as well). As banks will need to
pay additionally in order to attract deposits, their loaning operations will be negatively impacted, thus their overall
liquidity will suffer.
The profitability of the banks impacts directly its overall liquidity, as banks with high returns will tend to be more
liquid than their peers that are registering lesser results. Additional returns, tend not to be distributed in the first year
after they are made, thus increasing the retained earnings of the bank, implicitly its liquidity level. Contrary, lower
returns or losses will negatively impact the retained earnings, thus leading to a decrease of the overall liquidity of
the bank.
Regarding the size of the banking institution, its effects on the overall liquidity are mixed. Thus, a large bank will
tend to attract additional clients through the crowding-in effect, therefore increasing the overall liquidity of the bank.
Still in prolonged boom periods, larger banking institutions will tend to provide more average products (higher
interest rates for loans and lower interest rates for deposits), this determining a part of their clientele to relocate
toward more smaller banking institutions which are more costumer friendly, in this case the overall liquidity of the
smaller banks being increased.

4. Empirical results

As mentioned previous in order to underline the impact of a series of banks characteristics on the liquidity
indicator calculated for the banks from our sample we have employed an OLS regression analysis.
In order to avoid any multicollinearity problems we have performed a Pearson correlation analysis. The obtained
results underline that there are no multicollinearity problems between the chosen independent variables. Taking into
account the paper size restriction the results are available upon request.
The obtained results for the regression analysis are displayed in table 2 and table 3.

Table 2. Regression analysis results for the banks from Bulgaria, Czech Republic and Hungary
Bulgaria Czech Republic Hungary
Beta Sig. Beta Sig. Beta Sig.
constant 26.4773 0.0000 2.9637 0.1716 -1.4322 0.7084
TCR -0.2642 0.0129 -0.1170 0.1743 0.0819 0.4364
ILTL -0.1769 0.1002 0.3213 0.0000 0.0803 0.4617
IED 0.2090 0.0513 -0.0309 0.6882 0.5875 0.0000
ROAE 0.0437 0.6974 1.0474 0.0000 -0.3580 0.0010
ROAA -0.0746 0.4774 -0.6856 0.0000 -0.1756 0.4560
TATSA -0.1218 0.2538 0.0898 0.2373 0.3364 0.0010
2
Adjusted R 0.0590 0.4579 0.4069
Durbin-Watson sta. 2.4141 1.8410 1.4662
No. of observations 88 112 64

Note: 5% significance level

Source: authors’ calculations

Analysing the results presented in table 2, we can observe that Bulgaria has not been hit directly by the
international financial crisis (as the banking institutions from this country have not been directly exposed to the US
subprime mortgage crisis), still the banks operating in this country have registered a decrease of their activity as the
macroeconomic environment has depreciated. The regression analysis results underline a negative and statistically
significant link between the liquidity indicator and the total capital ratio. This can be explained by the pressure that
shareholders put on the management of banks to enhance the profitability if they are required to increase their
participation. In order to meet the shareholders requirements the management of the bank is forced to transform
 Angela Roman and Alina Camelia Sargu / Procedia Economics and Finance 20 (2015) 571 – 579 577

some of their liquid assets, which generate zero to low returns, into illiquid assets, like long term loans and other
long term investments which have a higher return. The Bulgarian banking supervision authorities have required
higher than average own capital ratios for the Bulgarian banks during the financial and economic turbulences that
manifested during the analysed period. Despite shareholders pressure and the increase of the TCR indicator,
Bulgarian banks have been reluctant to engage in new loaning activities, hence the negative impact that the TCR
indicator has on the liquidity indicator (loans / total assets) of the analysed Bulgarian banks.
The banks operating in the Czech Republic haven’t been hit either directly by the international financial crisis,
but were affected by the depreciation of the Czech economic environment which is export oriented and was
negatively affected by the European downturn. Thus, the banks operating in the Czech Republic registered an
increase of their impaired loans ratio during the analysed period of time. The new regulations adopted by the Czech
Republic National Bank demanded an increase of the overall banks liquidity level for the banks that registered a
deterioration of their loans portfolio, this determining also the positive and statistically significant link between the
liquidity indicator and the ILTL indicator. An interesting situation is between the liquidity indicator and ROAA and
ROAE respectively. This can be attributed partly to the new supervision regulations adopted as a result of the
financial crisis and in part because of the bank’s shareholders business strategies. Thus, if a bank becomes more and
more profitable the liquidity requirements are less stringent thus a negative and statistically significant link. On the
other hand as banks shareholders must contribute with more capital as a result of new prudential requirements they
expect an increase of their returns. Thus the positive relationship between ROAE and the liquidity indicator can be
explained.
The Hungarian government has avoided artificially the increasing of the impaired loans ratio to gross loans by
freezing the exchange rate between the Hungarian forint and the Swiss franc until 2015, thus allowing most of the
mortgage owners to still be able to pay their monthly interest rates. Moreover banks had to attract additional
deposits in order to comply with the new regulatory framework regarding liquidity standards, this leading to an
increase of the interest expenses for deposits, hence the positive and statistically significant link between IED
indicator and the liquidity indicator. As the larger banks operating in Hungary have been heavily involved in the
loaning process, these banks had to create additional liquidity buffers in order to comply with the new guidelines of
the Magyar Central Bank, thus the positive and statistically significant link between the ratio of total bank assets to
total banking sector assets and the liquidity indicator. Also, banks registering losses had to increase their liquidity
under the new guidelines, but as the loan market was almost saturated, banks were unable to increase their revenues
by granting additional loans, thus being unable to satisfy the demands of their shareholders, hence the negative and
statistically significant link between ROAE and the liquidity indicator.
In the case of the Lithuanian banks, the increase of the impaired loans ratio had a tremendous impact on their
overall liquidity. In order to avoid the collapse of the banking system the Lithuanian National Banks has undertaken
a series of reforms, among which an increase of the minimum liquidity level that banks must maintain. As banks
registered an increase of their impaired loans ratios the Central Bank required an even higher level of liquidity, thus
the positive and statistically significant link between the liquidity indicator and the impaired loans ratio.
In the case of the other Baltic country, namely Latvia, the regression results underline a positive and statistically
significant link between the total capital ratio and the liquidity indicator. As mentioned earlier, the shareholders
pressure on management for additional returns is the main cause for the existence of this outcome, the difference
being that Latvian banks were not reluctant to engage in loaning activities as their TCR indicator increased, thus the
positive and statistically significant link.
In the case of the Polish banks the evolution of the liquidity indicator was influenced by the IED and ROAE
indicators. Thus, as Poland has been one of the best performing economies in the analysed period of time, managing
to avoid the negative impact of the international and European financial turbulences, the Polish banks did not need
additional liquidity reserves, thus the regression analysis underling a negative relationship between the liquidity
indicator and the IED indicator. As interest rates to deposits dropped on the background of a stable macroeconomic
environment, banks were able to increase their liquidity level at a lower cost. As mentioned earlier, the shareholders
of the banks demanded higher returns for their additional participations to the bank capital, this explaining the
positive link between the ROAE indicator and the liquidity indicator, the Polish banks being able to carry out a
normal loaning activity during the analysed period of time.
578 Angela Roman and Alina Camelia Sargu / Procedia Economics and Finance 20 (2015) 571 – 579

Table 3. Regression analysis results for the banks from Lithuania, Latvia, Poland and Romania
Lithuania Latvia Poland Romania
Beta Sig. Beta Sig. Beta Sig. Beta Sig.
constant 15.1210 0.0000 9.8805 0.0000 24.8704 0.0000 19.0200 0.0000
TCR -0.0245 0.8622 0.2625 0.0027 -0.0641 0.4708 0.5972 0.0000
ILTL 0.3375 0.0109 0.0745 0.3969 0.0486 0.5864 1.2427 0.0032
IED -0.0908 0.4840 -0.1476 0.0940 -0.1865 0.0346 -0.1035 0.2184
ROAE 0.0511 0.7173 -0.0442 0.6196 0.2833 0.0015 -0.0856 0.3786
ROAA -0.0029 0.9832 -0.0848 0.3416 0.1182 0.5131 -0.0746 0.4426
TATSA -0.1364 0.3037 0.0429 0.6297 -0.0022 0.9799 -0.1305 0.1203
Adjusted R2 0.0975 0.0615 0.0947 0.1774
Durbin-Watson sta. 2.2480 2.4493 1.9243 1.9998
No. of obs. 56 128 120 120

Note: 5% significance level

Source: authors’ calculation

As the macroeconomic environment depreciated, more and more debtors were unable to repay their loans,
Romanian banks registering the highest increase of impaired loans from all of the sample countries during the
analysed period. In order to prevent additional troubles the National Bank of Romania has imposed additional
liquidity requirements for the banks with large bad loans portfolios. Thus, overall the banks operating in Romania
had to increase their liquidity reserves, this explaining the positive impact that the ILTL indicator has on the
liquidity indicator of the Romanian banks. Also, banks were required to increase their capital in order to be better
prepared in the event of sudden negative macroeconomic downturns. The banks operating in Romania have
continued their loaning process, this leading just like in the case of the Latvian banks, to a statistically significant
positive link between the TCR indicator and the liquidity indicator for the banks from our sample.

5. Concluding remarks

Summarising the obtained results, we can observe that the internal factors that have the most influence on the
overall liquidity of the analysed banks are: the total capital ratio (TCR), the ratio of impaired loans to total loans
(ILTL) and the return on average equity (ROAE). Notwithstanding, the impact of these indicators on the overall
liquidity of the analysed banks has been positive in some cases and negative in others, depending on the local
macroeconomic environment particularities.
Taking into account the link between the total capital ratio (TCR) and the overall liquidity of the analysed banks,
it becomes obvious that the measures adopted by the regulatory and supervision authorities, both at national and
European level, in order to prevent the negative effects of the global financial turmoil and the internal
macroeconomic downturn, had a positive impact also on the overall liquidity of the banks, this being of course one
of the desired outcomes.
The obtained results also underline the negative impact of impair loans raise on the overall liquidity of the banks.
Unfortunately this problem requires more comprehensive measures to be adopted, a diminishing of the impaired
loans to total loans ratio (ILTL) being possible only on the background of an improvement of the overall
macroeconomic environment. Until such an outcome is possible, the regulatory authorities, both at national and
European level, must closely supervise the overall liquidity of the CEE banks and take appropriate measure in order
to ensure that these banks have an adequate liquidity level despite a possible further depreciation of their loans
portfolios.
Nevertheless, supervision authorities must find an appropriate balance between their liquidity requirements and
the pressure that they put on the shareholders of the banks. As these are required to contribute with additional funds
 Angela Roman and Alina Camelia Sargu / Procedia Economics and Finance 20 (2015) 571 – 579 579

to the bank capital, their pressure on the bank management for an enhancement of the bank returns (ROAE) will
increase also exponentially, which can determine the enhancement of the possibility for moral hazard to appear.
Taking into account the importance of this subject, we consider appropriate the deepening of the analysis as a
further research direction. Thus we consider suitable to study the link between the efficiency of the banks operating
in CEE countries and their overall liquidity level in a future research. Hence, in order to underline the robustness of
the obtained results it is recommended to employ both a parametric and non-parametric analysis to estimate the
efficiency of the banks. Also, the usage of several liquidity indicators can enhance the precision of the obtained
results. This extensive analysis will allow the underlining of the link between the efficiency of the analysed banks
and their liquidity in a crisis environment, helping the regulatory authorities to better develop their monetary and
macro-prudential policies.

Acknowledgments

With the support of the Lifelong Learning Program of the European Union through the Jean Monnet Module
“Euro and the Banking Integration Process in an Enlarged EU - 2012-2911”. This publication reflects the views only
of the authors, and the Commission cannot be held responsible for any use which may be made of the information
contained therein.

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