A Comparative Analysis of the Determinants of Liquidity Risk Exposure in the Banking Sector of the Republic of Serbia and Banking Sectors of Former Socialist Countries

The purpose of this paper is to point out statistically significant empirical determinants of the exposure to liquidity risk for banks operating in the Republic of Serbia, and to perform a comparative analysis of the impact of these determinants on Serbian banks and banks from countries that have gone through a transitional period from being socialist countries to becoming members of the EU. Results indicate that increased exposure to liquidity risk in the local banking sector is associated with the following factors: high financial leverage, GDP growth, decline in the unemployment rate, decline in the deficit of balance of payments and an appreciation of local currency. The general impression is that the local banking sector is faced with an excessively high level of liquidity. Based on the comparative analysis carried out, and assuming that the Republic of Serbia undergoes a transition process that follows a model similar to that of the analysed EU members, several conclusions can be drawn regarding the nature of the effect of determinants of exposure to liquidity risk on banks during the transition period. It is to be expected that larger banks will keep their liquidity at relatively lower levels, that the development of the financial markets will lead to a change in liquidity management strategy and a reorientation of local banks to purchased liquidity management, and that the levels of capital adequacy will converge to that prescribed by the Basel regulatory framework.