1.0 Overview of Study
This study is examines the empirical relationship and effect between liquidity risk and profitability performance in Malaysia banking industry. Liquidity risk is an important aspect of the banking risks. This riskiness of its portfolio and operations usually will straightforwardly vary a bank’s profitability. According to Matthews and Thompson (2008), liquidity risk refers to the likelihood inability of a bank to convene its liquid liabilities due to unpredicted extraction of deposits. The bank is incapable to meet its liability requirements but also unable financed its illiquid assets is the example of an unexpected liquidity shortage.
Koch and Macdonald (2003) further explain that liquidity risk can be categorized into two types. The first type is funding liquidity risk which refers to incapability of discharge the assets or attains sufficient funding from borrowing whereas the second type is market liquidity risk where a bank faced difficulty of unwind or offset explicit disclosures without substantial losses from insufficient market depth or market disturbances. Once a bank is unable to expect new loan demand or deposit withdraws, and cannot access to new sources of cash at that time, a bank may has the greatest liquidity risk.
In Malaysia, liquidity risk is highly concentrated in the banking sectors as it measures show both the bank’s capacity to reasonably and easily borrow funds and the quantity of liquid assets near maturity or available-for-sale at rational prices. Besides that, the bank’s equity base and borrowing capacity in the money markets is illustrated by its equity-to-asset ratio and volatile (net non-core) liability-to-asset ratio.
According to the licensed banking institution liste...
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...btained from the annual report of the selected banks. Chapter 1 is related to the introduction such as the background of liquidity risk in Malaysia banking industry, motivation, problem statement, objective and significant of study. Chapter 2 is about summarized and literature review of liquidity risk, financial performance and other review that are related to this study. Chapter 3 will explain the methodology that will be adopted to conduct the empirical analysis for this study. In this study, the dependent variable is banking financial performance which includes the profit margin (PM), return on assets (ROA) and return on equity (ROE) while the independent variable is liquidity risk. Chapter 4 will discusses the result of the empirical analysis. Lastly is chapter 5, which contain the conclusion of this study with relevant recommendation and policy implementations.
These ratios can be used to determine the most desirable company to grant a loan to between Wendy’s and Bob Evans. Wendy’s has a debt to assets ratio of 34.93% while Bob Evans is 43.68%. When it comes to debt to asset ratios, the company with the lower percentage has the lowest risk. Therefore, Wendy’s is more desirable than Bob Evans. In the area of debt to equity ratios, Wendy’s comes in at 84.31% while Bob Evans comes in at 118.71%. Like debt to assets, a low debt to equity ratio indicates less risk in a company. Again, Wendy’s is the less risky company. Finally, Wendy’s has a times interest earned ratio of 4.86 while Bob Evans owns a 3.78. Unlike the previous two ratios, times interest earned ratio is measured on a scale of 1 to 5. The closer the ratio is to 5, the less risky a company is. From the view of a banker, any ratio over 2.5 is an acceptable risk. Both companies are an acceptable risk, however, Wendy’s is once again more desirable. Based on these findings, Wendy’s is the better choice for banks to loan money to because of the lower level of
The Corporation has sustained losses and negative cash flows from operations since its inception. The Corporation is exposed to liquidity risk as it continues to have net cash outflows to support its operations.
LifePoint Hospitals was founded in 1999 and has grown to be a leading hospital company with more than $3 billion in revenues and 54 hospital campuses in 18 states. They have more than 23,000 employees and nearly 3,000 physician partners striving to achieve their hospital’s mission and goals.
In order to analyze Ally, I will be evaluating its balance sheet and performance ratios over the period from June 2006 to June 2013. This will show the progression of the bank throughout the 2008-2009 financial crisis. I will compare Ally’s financial data to the whole US banking industry as a way to analyze the banks risk and performance over that period. Factors such as profitability, credit risk, capital adequacy, liquidity risk, interest rate risk, market risk, ad off balance sheet exposures will all be evaluated.
In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.
Obviously, financial establishments can endure breathtaking misfortunes notwithstanding when their risk management is top notch. They are, all things considered, in the matter of going out on a limb. At the point when risk management fails, be that as it may, it is in one of the many fundamental ways, almost every one of them exemplified in the present emergency. In some cases, the issue lies with the information or measures that risk directors depend on. At times it identifies with how they recognize and impart the risks an organization is presented to. Financial risk management is difficult to get right in the best of times.
By taking into account only the most liquid assets, ratio 1.0 in 2013 and 2012, which increased by a small margin 0.2 from 2011, indicates that company has strong liquidity position.
...y with abundant liquidity: a new operating framework for the Federal Reserve. Policy Brief PB14, 4.
Firm-specific risks include Business Risk, Liquidity Risk, Financial Risk, Political Risk, Tax Risk, Credit Risk and Call Risk. Business Risk results from the probability that a company will experience
The horizontal analysis shows that Woqod’s total current assets increased by 69% and its total current liabilities increased by 102% during 2005. This is largely explained by the increase in receivables, the increase in inventory, the increase in loans, and the increase in payables. The higher increase in total current liabilities than in total current assets explains why the current and acid-test ratios decreased from 1.82 to 1.53 and from 1.74 to 1.48, respectively. The values of the mentioned ratios indicate that Woqod is not highly liquid and that its liquidity is dropping.
There is a constant flow of cash and funds through the financial system due to the financial institutions as they assist money movement among the borrowers and lenders (lecture notes, chapter 8, 9, 15) a financial institution is basically a firm like a bank which acts as a safe house for depositors to keep their money and also provide loan with interest to others and this how they expand the institution. This is the basic concept of the way the economics works in a country and also how a bank functions. All the banks are connected to one another and if there is a problem in one of the banks the bank looses it image in the minds of the people and if it’s a big problem it can cause disaster within the financial system of the country and this can only be caused due to shortage of liquid cash. To have a proficient system the bank has to be sure to be liquid to avoid any problems. (Chapter 1) To help avoid this problem the government lays down regulations for the banks through prudential supervision (Chapter 2). The Australian regulatory power is Australian Prudential Regulation Authority (APRA), whereas in Singapore it is Monetary Authority of Singapore (MAS). The key concept of their job is to assure the people that their money is in safe hands. Keeping the capital safe is essential as it assists the bank to expand and help them pay off any debts when needed (Chapter 2). In context to if there is an emergency as the government has some control on the banks it asks them to keep some money on the ...
... Aoki, K. and Nikolov, K. (January 2013). Financial Disintermediation and Financial Fragility. Available: http://www.eea-esem.com/files/papers/EEA-ESEM/2013/598/Financial%20Disintermediation%20and%20Financial%20Fragility%20Feb%202013.pdf. Last accessed 28th Feb 2014.
The term liquidity means cash in hand which a firm required to meet its short term obligations. The ratios which come under this category are Current ratio, Quick/ Acid-Test ratio, and Cash ratio.
At the same time, the amount of non-performing loan ratio has also increased from 1.9% in 2015 to 2.4% in 2016 that requires banking institutions to pay more attention and to raise caution on risky sectors in order to strengthen the effectiveness of assets quality management (Supervision Annual Report, 2016). This can be resulted from the lack of sufficient legal framework for the institution governance and its operation monitoring. Therefore, this has brought the central bank to pay more attention to the performance of the banking and financial institutions in order to avoid the bankruptcy. To deal with the doubt concerned, there are few questions the study is going to figure out what are the problems of the banking supervision at the National Bank of Cambodia and how the central bank do to manage this issues.
The above estimation has left some questions pertaining to fill the gap by attempting to identify and measure factors that determine the profitability performance of commercial banks in Malaysia. What are bank-specific determinants and macroeconomic determinants influence on banks’ profitability in Malaysia compare to other countries? Do capitalized bank is contribute more on bank performance compare to other variables? Did relationships between determinants of banks’ profitability change during the financial crisis? This study therefore, intends to examine the bank specific and macro determinants on banks’ profitability, the impact capital and financial crisis on banks profit. To answer the research questions, the dissertation selected 27 commercial banks in Malaysia including local and foreign banks to fill this gap.