International Journal of Scientific and Research Publications, Volume 4, Issue 8, August 2014 1 ISSN 2250-3153 www.ijsrp.org A Prediction Model for Bank’s Liquidity Management to Study on the Impact of Internet Banking in Iran Fahime Kianian a-b , Amirmehdi Parhamfar a , Seyedhamidreza Shahabi Haghighi c-* , Maryam Khojani a-d a Garmsar School of Amirkabir University of Technology, Garmsar, Semnan Province, Iran. b NRI (Niroo Research Institute), Tehran, Iran. c Department of Industrial Eng. and Sys. of management, Amirkabir University of Technology, Tehran, Iran. d Post bank of Iran. Abstract- Bank managements are interested in determining the rate of liquidity based on a strategy for meeting this need. Lack of sufficient liquidity might impose heavy costs and even lead to bankruptcy. On the other hand, surplus liquidity will result in losing investment opportunities and reduction in productivity and profit ability of banks. In this research, efforts are taken to use the most affecting factors by investigation on important factors effective on the liquidity rate. The data used are chosen from 573 real values of banking operations. The variables are NEII 1 , RTGS 2 and clear transaction and the outcome of these variables is bank liquidity. In this research, two methods of ARIMA and multiple regressions are applied for predicting the future liquidity data and two mathematical models are introduced. The model introduced can predict liquidity rate based on two years data effectively. The results showed that the mean deviations between output of model and actual results are about 9% and 2.46% in first and second year respectively. This means the people preferred to use the internet in second year more than first year. Index Terms- Liquidity, Internet banking, Regression model, Prediction I. INTRODUCTION tudy on the liquidity of a bank is important because this parameter affect the performance of the bank. In fact, liquidity management is among the main duties of banks and one important factor for managing assets and debts in a bank. All bank activities depend on its potential in provision of required liquidity to manage its clients’ transactions. Therefore, efficient liquidity management needs the cash liquidity of bank to be continuously kept in its minimum possible rates by considering the performance and proper assurance. Therefore, one of the major responsibilities for asset managers is to control the banks’ liquidity. Most of the time, the banks encounter the unpredictable demand for cash amounts thus the sufficiency of banks’ liquidity shall be performed precisely. In order to evaluate the liquidity of a bank, the due date of assets and debts can be studied. The effective factors on the money circulation in a bank are the interbank transaction system, physical banking and the pure settlement result of the whole state which are daily added in this system. Therefore, these elements have vital importance for state 1 Network for Exchange of Interbank Information 2 Real Time Gross Settlement banking system and the banks shall be able to provide the resources required for settlement at any circumstances. Auty [1] implied that a bank can provide its resources quickly in a suitable rational cost if taking advantage of an appropriate method. For this purpose, prediction of appropriate liquidity for banks would have great importance. Leilidoust [2] described the bank institutes all over the world play critical role in economic and commercial activities and the behavior of these institutes influences the total function of state economy. The effective execution in a money policy, as an important factor, requires focusing on the payment systems by using planned transactions of money market. This can help to control the state financial and economic activity precisely. Besides, development of payment systems can affect the speed of monetary turnover and money demand. Therefore, in different countries the banks use special plans to attract their client with low cost. Although Faghih [3] described that the first type of bank asset is the cash which is considered as a non-returnable asset, in last few years internet banking was going to have a great roll in bank transaction in Iran. Instant Gross Settlement System (RTGS) in Iran acts as a unique account for interbank transactions 3 and is a main and inseparable parts of bank’s concentrated management system of cash. Thus, in this system, concentrated management of cash is very important. Also NEII 4 is a comprehensive banking electronic network in Iran. NEII was created by the central bank of Islamic Republic of Iran in order to connect the banks’ payment networks to each other to perform electronic interbank transactions hub. Thus, determination of a proper model for estimation and prediction of the bank’s liquidity is critical in internet banking of Iran. According to this, the current research aims to predict the bank’s liquidity in Post Bank of Iran via a mathematical model. II. LITERATURE REVIEW Cabrero et. al [4] has provided a model for liquidity management of the bills in daily circulation for central bank of Europe. Author introduced various seasonal modes for series of bills in daily circulation. The model was based on autoregressive 3 - All interbank transactions can be defined in the four formats of A)Bank to bank, B) Bank to client, C)Client to bank and D)Client to client. 4 Network for Exchange of Interbank Information S