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Excess Lending, Nonperforming Loan Ratio and Liquidity: Liquidity Spiral or Liquidity Trade-off?

【Authors】
QIAN Chongxiu, SONG Guanghui & XU Lin
【WorkUnit】
QIAN Chongxiu, SONG Guanghui(School of Business Administration, South China University of Technology, 510640)
XU Lin (School of Economics and Commerce, South China University of Technology, 510006)
【Abstract】

Liquidity management is becoming more and more important to commercial banks under the financial environment of descending interest rate and tightening macro liquidity in China. Based on the financial data of 112 commercial banks in China from 2011 to 2016, a panel regression model is established to analyze the effect of excess lending and NPL on commercial bank liquidity. The results show that current excess lending and previous NPL have a Ushaped influence on commercial bank liquidity, which reflects the liquidity trade-off strategy. Current NPL has a negative effect on commercial bank liquidity, which reflects the liquidity spiral phenomenon. Furthermore, when the excess lending and NPL increase at the same time, commercial banks will raise the threshold of liquidity trade-off strategy, and supplement liquidity more actively, to avoid the liquidity risk. Finally, some suggestions are put forward from the perspectives of improving the liquidity management strategy of commercial banks and the government supervision.

JEL:G21, G33

【KeyWords】
Excess Lending, Non-performing Loan Ratio, Commercial Bank Liquidity, Liquidity Spiral, Liquidity Trade-off