Acta Univ. Agric. Silvic. Mendelianae Brun. 2014, 62(2), 427-436 | DOI: 10.11118/actaun201462020427

Liquidity Risk Sensitivity of Czech Commercial Banks

Pavla Vodová
Department of Finance, School of Business Administration in Karviná, Silesian University in Opava, Univerzitní nám. 1934/3, 733 40 Karviná, Czech Republic

The recent financial crisis has shown that a liquidity risk plays an important role in the current developed financial system. One of the efficient tools of liquidity risk management is stress testing which can show banks their potential vulnerability to liquidity shocks. The aim of this paper is therefore to measure the liquidity risk sensitivity of Czech commercial banks and to find out the most severe scenario and the most vulnerable bank. Our sample included significant part of the Czech banking sector; we used unconsolidated balance sheet data over the period from 2000 to 2011 which were obtained from annual reports of Czech banks. We have evaluated liquidity risk of each bank in the sample via six different liquidity ratios. Then we stressed these baseline values in three stress scenarios: run on a bank (simulated by a 20% withdrawal of deposits), confidence crisis on the interbank market (simulated by a withdrawal of 20% of interbank deposits) and use of committed loans by counterparties (simulated by a 5% increase of loans provided to nonbank clients). We measured the impact of all scenarios by relative change of liquidity ratios. The impact of modelled liquidity shocks differs among scenarios. The most serious liquidity problems would be caused by the first scenario - run on a bank. The negative influence of third scenario (use of committed loans) is less severe. The confidence crisis on the interbank market would not affect bank liquidity at all. The results also show that the severity of the impact of all scenarios worsens in periods of financial distress. We have also found that large and medium sized banks are most vulnerable to liquidity shocks, mainly to massive deposit withdrawals.

Keywords: liquidity risk, sensitivity analysis, Czech commercial banks
Grants and funding:

This paper was prepared with financial support of Czech Science Foundation (Project GA ČR P403/11/P243: Liquidity risk of commercial banks in the Visegrad countries).

Prepublished online: May 23, 2014; Published: February 1, 2014  Show citation

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Vodová, P. (2014). Liquidity Risk Sensitivity of Czech Commercial Banks. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 62(2), 427-436. doi: 10.11118/actaun201462020427
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