Liquidity Risk Management: A Comparative Study between Domestic and Foreign Banks in Pakistan

The purpose of this study is to establish the firms level aspects which have more influence on the Credit risk managing of domestic and foreign banks in Pakistan. The study is based on secondary data from the period of 2001 to 2010. To check the stationarity of the data, Augmented Dickey Fuller test is used and Johansson’s Co-integration is used for long run relationship. Linear regression model with OLS techniques is used for analysis. The relationship of bank size with liquidity risk is negative and significant in domestic banks and negative and insignificant in foreign banks. The relationship of debt to equity ratio with liquidity risk is negative and significant both in domestic and foreign banks. The relationship of liquid assets with liquidity risk is negative and insignificant in domestic banks and positive and significant in foreign banks. Based on the findings of the study it is recommended to establish more branches of domestic and enhance debt to equity ratio in order to liquidity risk.