Talha Ahmed SIDDIQUI*, Syed Faizan IFTIKHAR** and Khurram IFTIKHAR***
Abstract
The study investigated the effect of bank capital ratio on bank lending depending on the liquidity level of 33 banks in Pakistan by using a two-step system GMM between 2006 and 2021. The empirical results suggest that bank capital is positively associated with lending, whereas bank liquidity is negatively related when the whole sample is taken and is negative for domestic banks. Besides, the interaction effect between capital and liquidity is positive (favourable) for domestic banks and negative (unfavourable) for the whole sample. The study provides implications for banking institutions and policymakers. Firstly, the assessment of the effectiveness of various determinants of bank lending is a prerequisite for any effort to improve the lending by the banks in Pakistan. Moreover, any policy to improve bank lending should be devised considering the relationship between capital and liquidity requirements.
