Factors Affecting Liquidity of Selected Commercial Banks in Ethiopia
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Date
2015-06
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Addis Ababa University
Abstract
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.
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Keywords
Ethiopian commercial banks; determinants of liquidity; liquidity ratios; liquidity risk, panel data regression analysis.