Liquidity creation on bank’s performance between single and dual banking system in Southeast Asia

Hoo, Min Yan and Lee, Wen Ni and Mooi, Yoke Kei and Ong, Ying Ying and Peng, Wei Hao (2021) Liquidity creation on bank’s performance between single and dual banking system in Southeast Asia. Final Year Project, UTAR.

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Abstract

This research investigates liquidity creation on the bank’s performance between single and dual banking systems in Southeast Asia. Cambodia, Singapore and Vietnam are the countries chosen as the proxy of single banking system; whereas Malaysia, Indonesia and Brunei are the countries of dual banking system. The explanatory variables are total loans, non-performing loans, total deposits, gross domestic product, inflation rate and unemployment rate. Secondary data is being adopted. Net interest margin as the dependent variable and the six independent variables were collected on an annual basis from 2007 to 2017, mainly through the source from the World Bank. Several empirical testing as well as diagnostic checking such as Phillips-Perron Unit Root Test, Poolability Hypothesis Testing, Breusch and Pagan Lagrange Multiplier Test, Hausman Test and Normality Test have been carried out to ensure the validity of the regression model. The results proved that FEM is preferable as compared to POLS or REM in examining the relationship of the liquidity creation determinants to the bank profitability in both the single and dual banking system. In single banking system, all of the independent variables are insignificant; whereas total loans, total deposits and unemployment rate in dual banking system are significant to bank performance. Therefore, it can be concluded that the performance of dual banking system is overall superior to single banking system in considering the number of significant variables in FEM, R square value and F statistic. This study could bring significant implications towards several parties which are policymakers, individuals, stakeholders and future researchers. Some recommendations have been proposed to resolve the limitations of the study for the sake for future further research.

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