ASSESSING THE IMPACT OF COMMERCIAL BANK LIQUIDITY ON LOAN PORTFOLIO QUALITY

The thesis analyses the theoretical and empirical relationship between the liquidity of  commercial banks and the quality of their loan portfolios. Bank liquidity is interpreted as a  multidimensional category that combines funding liquidity, market liquidity, deposit stability and  access to central-bank facilities; loan-portfolio quality is measured by the share of non-performing  loans (NPL), loan-loss provisions and the volatility of expected credit losses under IFRS-9. Drawing  on the works of Diamond and Rajan, Berger and Bouwman, Acharya and Naqvi, Cornett, McNutt,  Strahan and Tehranian, Beltratti and Stulz, DeYoung and Torna, and IMF and Basel Committee  documents, the paper systematises two competing theoretical mechanisms — the risk-shifting  channel and the buffer channel — and summarises the empirical evidence.