Indrit Hoxha

School of Business Administration, Penn State Harrisburg,

Pennsylvania, US

ixh16@psu.edu

ORCID 0000-0003-0857-5696

Does Kyrgyz banking system liquidity provide economic growth?

Nurlan Atabaev

School of Entrepreneurship and Business Administration, 

American University of Central Asia, 

Bishkek, Kyrgyzstan 

atabaev_n@auca.kg

ORCID 0000-0002-4024-1226

Begimai Marlenova

TUM School of Management, Technical University of Munich,

Heilbronn, Germany

begimai.marlenova@tum.de

ORCID 0000-0003-1608-7836

Gulnaz Atabaeva

Liberal Arts and Sciences Department, 

American University of Central Asia, 

Bishkek, Kyrgyzstan 

atabaeva_g@auca.kg

ORCID 0000-0001-6477-6228

Ibrahim Keles

Frontier Schools, 

Kansas City MO, USA

ikeles@frontierschools.org

ORCID 0000-0001-6439-5740 

Abstract. The relationship between the liquidity ratio, the economy and the banking system of a country is a popular subject among academics. This research aims to understand this connection for Kyrgyzstan, a developing economy. The Vector Auto Regression approach was used to trace the association of liquidity ratio to loan and deposit volumes, interest income, net interest income, treasury bill volume, and gross domestic product based on the quarterly data. The data was obtained from various publications of the National Bank of the Kyrgyz Republic. The primary literature indicates that bank liquidity has an inverse correlation not only with bank profitability but also with economic growth. The findings confirm a similar relationship for Kyrgyzstan. Furthermore, liquidity has a positive relationship to treasury bills volume, but a negative correlation to economic growth. However, there was no significant correlation between the liquidity ratio and deposit volumes. Therefore, this paper found that high liquidity ratio of the Kyrgyz banking system negatively effects both the profitability of the banks and economic growth. 

Received: February, 2022

1st Revision: October, 2022

Accepted: December, 2022

DOI: 10.14254/2071-8330.2022/15-4/15

JEL Classification: E5, E6, O4

Keywords: liquidity ratio, profitability, deposit volume, treasury bills, gross domestic product, vector autoregression