What Factors Drive the Banks Systemic Risk among South Asian Countries

Purpose: This study designs to examine the determinants (size, liquidity ratio, leverage ratio, deposit ratio, asset growth, net interest income ratio and return on asset ratio) of bank’s systemic risk. We use the data of listed commercial banks of the South Asian countries (Pakistan, Bangladesh, and India). Design/Methodology/Approach: The sample consists 30 banks from Bangladesh, 87 banks from India and 22 banks from Pakistan. This study covers the period from 2006 to 2018. The data is collected from the published annual reports of banks and stock exchanges of respective country. The panel data analysis is performed for the estimation of research models. Findings: The findings demonstrate that larger banks contribute lower in the systemic risk of banks. Additionally, highly liquid banks enhance the systemic risk of the banking system. Moreover, the banks with greater reliance on the deposits, net interest income and with high return on asset reduce the systemic risk contribution of the banks. Implications/Originality/Value: This study provides the justification to devise the banking policies like enhance the proportion of liquidity among assets, reliance on net interest income and promote the financing needs through deposits to limit the systemic risk contribution of the banking system.