Title: Explaining the endogeneity between the credit risk, liquidity risk, and off-balance sheet activities in commercial banks: a case of South Asian economies

Authors: Muhammad Farhan Basheer; Waeibrorheem Waemustafa; Mohamad Helmi Bin Hidthiir; Saira Ghulam Hassan

Addresses: Lahore Business School, University of Lahore, 54590, Lahore, Punjab, Pakistan ' Department of Banking and Risk Management, School of Economics, Finance, and Banking (SEFB), Universiti Utara Malaysia, 06010 Sintok Kedah Darul Aman, Malaysia ' Department of Banking and Risk Management, School of Economics, Finance, and Banking (SEFB), Universiti Utara Malaysia, 06010 Sintok Kedah Darul Aman, Malaysia ' Department of Banking and Risk Management, School of Economics, Finance, and Banking (SEFB), Universiti Utara Malaysia, 06010 Sintok Kedah Darul Aman, Malaysia

Abstract: The main objective of the current study is explaining the endogeneity among liquidity risk (LIQDR), credit risk (CRDR) and off-balance sheet activities. The balanced panel of 81 banks over a period of five years from 2013-2017 is chosen to investigate achieve the research objectives. Fixed effect and generalised method of momentum panel estimates, followed by a series of diagnostic tests have appeared most appropriate for the study. The findings of the Hausman test have confirmed the presence of endogeneity. Arellano-Bond test for zero autocorrelation are estimated in the generalised method of moments (GMM) analysis of the work in our case. The findings have provided the support that South Asian banks use OBSA for hedging purposes. The LIQDR, and CRDR are in significant positive relationship with each other. The findings of the study have provided more support to the market portfolio theory and finical intermediation theory.

Keywords: off-balance sheet activities; liquidity risk; credit risk; Market portfolio theory; market power theory; endogeneity; South Asia.

DOI: 10.1504/IJMEF.2021.114032

International Journal of Monetary Economics and Finance, 2021 Vol.14 No.2, pp.166 - 187

Received: 23 Oct 2019
Accepted: 20 May 2020
Published online: 06 Apr 2021 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article