Limitations of the study and recommendations for future research

This study was limited to registered banks in South Africa that had accessible data for the period 2005 to 2015. Consequently, a small cohort was left out from the analysis due to difficulty of obtaining financial statements for these banks. Most of the banks excluded were small in terms of asset base; therefore, their inclusion could have provided some important insights on liquidity and bank size. It would be interesting to find how small banks reacted during the global financial crisis. Furthermore, inclusion of a comparative study between banks registered in South Africa and non-South African banks operating in South Africa may be insightful, especially as international banks can get liquidity assistance from their parent companies in time of need. Since banks can get help from the parent company in times of crises, an analysis of the banks as part of holding companies could be justified.

The banks were analysed over a period that included the period of global financial crisis, and the study even controlled this by way of a dummy variable. However, we recommend the period under investigation to be split into period before the crisis, during the crisis and after the crisis. Understanding the liquidity dynamics in each period, especially in the context of asset–liability mismatches, may provide banks with relevant liquidity management techniques suitable for each period.

This study revealed that banks that have higher liquidity mismatch are associated with lower performance, and also that banks that have higher returns also have higher liquidity mismatch. It is not clear whether it was liquidity that caused bank profitability or if it was bank profitability that caused liquidity. Therefore, future research should focus on understanding which causes which. Moreover, further research could look at the optimal amount of liquidity that a bank can hold accounting for the trade-off, which is there between low-return liquid assets and the higher return from an illiquid long-term loan portfolio. Finally, there is a need to analyse BLMI on Fama - French’s three-factor model (Fama & French, 1996) as the fourth factor and to determine how liquidity affects the stock return of a specific bank. Since the ALMI is an aggregate measure, it would be interesting to see it empirically tested as part of DSGE models.

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