Historically, pressure on the banking sector’s liquidity usually increases during the fasting month.
iquidity is important for banks because it determines their short-term operational capability. Banks with ample liquidity stock will be able to manage their cash outflows, either from loan disbursement or funds withdrawal, and so on.
Meanwhile, a bank with a liquidity shortage may not be able fund outflows, thus diminishing its trustworthiness. In its worst scenario, it may lead to massive fund withdrawal by savers and may trigger a bank run.
From a liquidity perspective, the banking sector has been proven resilient during the last year until the beginning of 2017.
Towards the end of 2016, where the banking sector’s liquidity usually faces end-of-year seasonal liquidity risks, liquid-assets-to-deposits ratio (LA ratio), an indicator for liquidity, was maintained above 20 percent, which indicated a position of ample liquidity.
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