Liquidity Creation by Conventional Banks In Pakistan

Abstract

Conventional banks create liquidity in the economy by facilitating investments and savings. Conventional
banks create liquidity by utilizing the on & off-balance sheet items and handling their asset and liability
portfolios of different maturities. The current study estimated the volume of liquidity created by
conventional banks utilizing the "Catfat" model (Berger & Bouwman, 2009). The yearly sample data was
gathered from 2000 to 2021; the secondary data source is Thomson Reuter's financial data stream. The
study has taken a sample from all the conventional banks registered on Pakistan Stock Exchange.
Findings suggest that the conventional banks in Pakistan created liquidity in the economy of around 7.05
Trillion Rupees in 2021 and around 0.33 Trillion Rupees in 2000. It was found that Habib Bank Limited
made the most contribution in 2021, i.e., 1156 Billion Rupees 2021, and the SAMBA Bank created the
least liquidity, i.e., 47 Billion Rupees. It is concluded that the conventional banks in Pakistan play an
essential role by creating liquidity in the market to boost the economy. It is recommended that different
factors, such as corporate governance, capital, and monetary policy, can affect liquidity creation in
Pakistan. Further research can examine the influence of these factors on liquidity creation.