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How Does Credit Risk Influence Liquidity Risk? Evidence from Ukrainian Banks

Author

Listed:
  • Ruoyu Cai

    (Management School
    University of Sheffield)

  • Mao Zhang

    (Management School
    University of Sheffield)

Abstract

This study investigates the link between two major risks in the banking sector: liquidity risk and credit risk. Utilizing a novel sample of Ukrainian banks for the period from Q1 2009 to Q4 2015, we document credit risk as having a positive relationship with liquidity risk. Our findings suggest banks with high level of non-performing loans might not meet depositors’ withdrawal demands, which could lower cash flow and trigger depreciations in loan assets, and consequently increase liquidity risk. Furthermore, we find this positive relationship between credit risk and liquidity risk is more pronounced in foreign banks and large banks. Our results are robust with respect to alternative measures of bank risks.

Suggested Citation

  • Ruoyu Cai & Mao Zhang, 2017. "How Does Credit Risk Influence Liquidity Risk? Evidence from Ukrainian Banks," Visnyk of the National Bank of Ukraine, National Bank of Ukraine, issue 241, pages 21-32.
    • Handle: RePEc:ukb:journl:y:2017:i:241:p:21-32
    DOI: 10.26531/vnbu2017.241.021
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    References listed on IDEAS

    as
    1. Allen N. Berger & Christa H. S. Bouwman, 2009. "Bank Liquidity Creation," The Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3779-3837, September.
    2. Stephan Barisitz & Mathias Lahnsteiner, 2009. "Investor Commitment Tested by Deep Crisis: Banking Development in Ukraine," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 18, pages 67-75.
    3. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
    4. Jan Ericsson & Olivier Renault, 2006. "Liquidity and Credit Risk," Journal of Finance, American Finance Association, vol. 61(5), pages 2219-2250, October.
    5. Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 4(4), pages 335-344, December.
    6. Houston, Joel F. & Lin, Chen & Lin, Ping & Ma, Yue, 2010. "Creditor rights, information sharing, and bank risk taking," Journal of Financial Economics, Elsevier, vol. 96(3), pages 485-512, June.
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    Citations

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    Cited by:

    1. Baah Aye Kusi & Lydia Adzobu & Alex Kwame Abasi & Kwadjo Ansah-Adu, 2020. "Sectoral Loan Portfolio Concentration and Bank Stability: Evidence from an Emerging Economy," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 19(1), pages 66-99, April.
    2. Demian Macedo & Victor Troster, 2021. "Liquidity shocks and interbank market failures: the role of deposit flights, non-performing loans, and competition," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(4), pages 705-746, October.
    3. Jihen Bouslimi & Abdelaziz Hakimi & Taha Zaghdoudi & Kais Tissaoui, 2024. "The complex relationship between credit and liquidity risks: a linear and non-linear analysis for the banking sector," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-9, December.
    4. Nilufer Ozdemir, 2020. "Liquidity Risk Management of Affiliated Banks during the Sub-prime Mortgage Crisis," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 12(1), pages 31-47, June.
    5. Hakimi Abdelaziz & Boussaada Rim & Hamdi Helmi, 2022. "The Interactional Relationships Between Credit Risk, Liquidity Risk and Bank Profitability in MENA Region," Global Business Review, International Management Institute, vol. 23(3), pages 561-583, June.
    6. Chai, Wei Jian, 2019. "The Effects Of Liquidity Risk And Market Risk On Mcdonald’S Corporation Performance From 2014 To 2018," MPRA Paper 97268, University Library of Munich, Germany, revised 15 Nov 2019.
    7. Djebali, Nesrine & Zaghdoudi, Khemais, 2020. "Threshold effects of liquidity risk and credit risk on bank stability in the MENA region," Journal of Policy Modeling, Elsevier, vol. 42(5), pages 1049-1063.
    8. Daniel Ofori-Sasu & John Kuwornu & Gloria Clarissa Dzeha & Baah Aye Kusi, 2022. "Risk behaviour and insurance efficiency: the role of ownership and regulations from an emerging economies," SN Business & Economics, Springer, vol. 2(7), pages 1-30, July.
    9. Rim Boussaada & Abdelaziz Hakimi & Majdi Karmani, 2022. "Is there a threshold effect in the liquidity risk–non‐performing loans relationship? A PSTR approach for MENA banks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 1886-1898, April.

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    More about this item

    Keywords

    Liquidity risk; credit risk; bank size; bank ownership;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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