Effect of Internal and External Factors on Liquidity Resilience of Bank

Gigih Rizki Yuwantra, Noer Azam Achsani, Andi Buchari

Abstract: As one of the banks in BUKU 3 that categorized into the Domestic Systemically Important Bank (DSIB), they must be more prudent in managing all aspects of the risk. The first thing that will be in the spotlight of the regulator is the liquidity position of the bank itself. Liquidity is vulnerable and can suddenly be drained from a bank so that liquidity difficulties in a bank can spread to other banks (contagion effect) which creates systemic risk. In accordance with Basel III, OJK requires the implementation of Liquidity Coverage Ratio (LCR) to monitor the ability of banks to meet their short-term obligations of less than 30 days. This ratio complements the existing liquidity ratio and is more long-term, namely Loan to Funding Ratio (LFR). Through the VECM estimation test, internal factors in the first model are Short Term Liquidity (SL) proved to have a negative effect and significant on LCR both for a short and long term, while Funding Gap (FG) and LFR had a negative but not significant effect on LCR. Liquidity Creation (LC) is the only internal factor that has a positive and significant effect in the long run. Furthermore, for all external factors variables have a significant long-term effect. INF and ROR have a negative effect, while BIRATE and IPI have a positive effect. Finally, the Impulse Response Function (IRF) and Forecast Error Variance Decomposition (FEVD) tests show that for internal factors are LFR and SL which has the biggest contribution to changes in LCR and for external factors, sum of INF and BIRATE in the long run has the biggest contribution compared to other variables.

Keywords: Risk Liquidity, LCR, VECM, IRF, FEVD