Browsing by Author "Yirdaw, Workneh"

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    The impact of Liquidity on performance: Empirical Study on Ethiopian Private commercial Banks
    (Addis Ababa University, 2015-06) Yirdaw, Workneh; Takele, Yitbarek (PhD)
    Recent financial shocks have generated a lot of debates over the issue of liquidity risk and strategies to mitigate its effects on financial institutions, particularly banks as majors’ players in the funding liquidity markets. The purpose of this study is to investigate the impact of liquidity on performance of banks in Ethiopia by using data of eight private commercial banks from year 2009/10 to 2013/14. The study used quantitative research approach and secondary financial data which is analyzed by using multilevel linear regressions models for the three bank performance measures; Return on Asset (ROA), Return on Equity (ROE), and Net Interest Margin (NIM). The random effect multilevel regression model was applied to investigate the impact of liquidity measures; loan to deposit ratio (LDR), loan to asset ratio(LAR), and liquid asset to deposit ratio(LADR) on major bank performance measures i.e., (ROA), (ROE), and (NIM) separately. Eight private banks are randomly selected and considered in the sample out of sixteen private banks representing 50% in number. The study used trend analysis using graphs for each of the variables in the study to observe the trend on them throughout the observation period. The empirical results show that the performance (profitability) measure, NIM, has significant relationship with liquidity measures of LDR, LAR and LADR. The other performance measure, ROE has positive and significant relationship with LADR; but ROA has positive and significant relationship with LADR. Hence, the impact of liquidity on financial performance of private commercial banks in Ethiopia is both positively & negatively related and the significant relationship varies from measure to measure. Finally, there has to be further research apart from bank specific measures considered in this study on the relationship between liquidity and performance of private commercial banks in Ethiopia by incorporating regulatory factors and other bank specific and macroeconomic factors. Further research is recommended on how to achieve the optimal liquidity level in commercial banks. Key words: Liquidity, Liquidity Risk, Performance, Private Banks