INVESTIGATING THE DRIVERS OF LIQUIDITY IN ISLAMIC AND CONVENTIONAL BANKS IN PAKISTAN

Abstract

This study investigates the impact of bank-specific and macroeconomic factors on the liquidity of Islamic and conventional banks operating in Pakistan. The unbalanced panel data has been used from 2007 to 2020. The fixed effects model used the empirical analysis. Profitability, inflation, and market capitalization positively affects the liquidity of Islamic and conventional banks. However, efficiency and the concentration have a negative effect on the liquidity in case of full sample and Islamic banks. This empirical study offers valuable insights into the determinants of liquidity of Islamic and conventional banks in Pakistan, enabling financial regulatory institutions and the management, decision makers to adapt risk management and strengthening regulatory frameworks accordingly. Thus, encouraging Shariah-compliant liquidity instruments and improving regulatory frameworks to ensure financial soundness across the dual banking system.