The effects of liquidity risks and interest rates risks on profitability: Evidence from Ethiopian banks.
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Date
2023-06-18
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AAU
Abstract
This paper examined the effect liquidity risk and interest rate risk in selected Ethiopian
commercial banks by analyzing how liquidity risk measures such as loan to deposit ratio and liquid
asset to total asset ratio and, interest rate risk measures such as net interest margin and asset
interest yield affect a bank’s profitability measures return on assets and return on equity. The
study's primary goals were to comprehend how liquidity risk and interest rate risk affect the
profitability of Ethiopian commercial banks and to provide a foundation for further investigation
of interest rate risk. To analyze the effects the study used an unbalanced panel data for a sample
of 17 banks that have been operating for at least 10 years for the period 2010-2022. The study
therefore has determined that liquidity risk does not have a significant effect on profitability for
the selected Ethiopian banks in the given period when interest rate risk effects are also captured.
The results also show that the net interest margin and asset interest yield have a positive effect on
profitability measures. The implication being that interest rate risk which is inversely captured by
net interest margin and asset interest yield, has a negative effect on profitability of the selected
banks