The Effect of Liquidity Management on the Performance of Commercial Banks in Ethiopia: In the Case of Selected Commercial Banks in Ethiopia

No Thumbnail Available



Journal Title

Journal ISSN

Volume Title



The aim of the study to examine the effect of liquidity management on the performance of selected commercial banks of Ethiopia. In order to achieve the stated objectives a quantitative approach was used. To this end, the researcher took nine explanatory variables of liquidity management variables; those are bank specific (Capital adequacy(CAP),current assets to total asset ratio(CATAR),loan to deposit ratio(LDR),liquid assets to net current liability ratio(LACLR),liquid asset to total asset ratio(LATAR),liquid assets to deposit ratio(LATDR),non-interest expense to total income ratio(ME)and macro-economic variables(GDP and inflation rate(INF)).Balanced fixed effect panel regression was used for the data of seven commercial banks(namely Awash bank(AIB), Bank of Abyssinia(BOA),Commercial bank of Ethiopia(CBE),Dashen bank(DB), Nib international bank(NIB),Hibret bank(HB) and Wegagen bank(WB) in the sample covered the period from 2000 to 2018 G.C. The study used return of asset (ROA) used as dependent variable for measuring the profitability of the selected commercial banks the above liquidity variables used as explanatory variables. The study based on a balanced panel constructed ordinary least square (OLS) and fixed effect model. The regression result showed that capital adequacy (CAP), GDP and inflation rate had a positive and significant effect and non-interest expense to total revenue ratio had negative and significant effect. On the other hand current asset to total asset ratio (CATAR), loan to deposit ratio (LDR) had positive but insignificant effect and liquid asset ratio (LATAR), Liquid assets to net current liabilities ratio (Quick ratio) and liquid asset to deposit ratio (LATDR) had inverse relationship and insignificant effect on the ROA of the selected commercial banks within the study time frame. Therefore, liquidity management had non-linear effect on the performance of the banks.



liquidity, management, profitability, commercial banks