Factors Affecting Liquidity of Selected Commercial Banks in Ethiopia

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Addis Ababa University


This study examines the bank-specific and macro-economic factors affecting bank liquidity for eight commercial banks in Ethiopia, covering the period of 2002-2013 by using balanced fixed effect panel regression. To this end, the study adopts a mixed methods research approach by combining documentary analysis and in-depth interviews. The findings of the study show that capital strength, interest rate margin and inflation had statistically significant and positive relationship with banks’ liquidity. On the other hand, loan growth had a negative and statistically significant relationship with banks’ liquidity. However, the relationship for profitability, non-performing loans, bank size and gross domestic product were found to be statistically insignificant. The study suggests that focusing and reengineering the banks alongside the key internal drivers could enhance the liquidity position of the commercial banks in Ethiopia. Moreover, banks in Ethiopia should not only be concerned about internal structures and policies, but they must consider both the internal environment and the macroeconomic environment together in developing strategies to improve the liquidity position of the banks Key words: Ethiopian commercial banks, determinants of liquidity, liquidity ratios, liquidity risk, panel data regression analysis.



Ethiopian commercial banks; determinants of liquidity; liquidity ratios; liquidity risk, panel data regression analysis.