The Effect of Banks' Liquidity on Grant Facilities

Abstract

Managing huge amounts of assets in large banks require regular and constant control, as the slightest weakness in one of such bank’s various fields of activity can affect its assets in the long term. On the other hand, the increasing and expanding private banks and competitions between public and private banks further denote the importance of appropriate credit allocations and swiftness in granting facilities prompted the researcher to investigate and analyze credit and facility system of BSI, as large public bank in Iran. For this purpose, this study evaluates the relationship between changes in liquidity (increase/decrease) and capability to grant facilities in BSI by OLS (Ordinary Least Squares) econometric model which utilizes the data from 1984 to 2007 time series and considers the factors affecting the allocation of facilities including liquidity, capital, assets and deposits. The findings demonstrate that the amount of BSI liquidity has positive and significant effect on the capability of this bank to grant facilities, meaning that increase in liquidity results in increase in capability to grant bank facilities.