Determinants of Liquidity in Commercial Banks of Ethiopia: The Case of Selected Private Banks

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Date

2016-04

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Addis Ababa University

Abstract

Liquidity is one of the major concerns for banks and thus achieving the optimum level of liquidity is crucial. The main objective of this study was to identify the determinants of liquidity of private commercial banks in Ethiopia. In order to achieve the research objectives, data was collected from a sample of six private commercial banks in Ethiopia over the period from 2000 to 2015. Bank specific and macroeconomic variables were analysed by using the balanced panel fixed effect regression model. Bank’s liquidity is measured in three ratios: liquid asset to deposit, liquid asset to total asset and loan to deposit ratios. The findings of the study revealed that, bank size and loan growth has negative and statistically significant impact on liquidity; while non-performing loans, profitability and inflation have positive and statistically significant impact on liquidity of Ethiopian private commercial banks. However, capital adequacy, interest rate margin, real GDP growth rate , interest rate on loans and short term interest rate have no statistically significant effect on the liquidly of Ethiopian private commercial banks. Keywords: Determinants of Liquidity, Ethiopian Private Commercial Banks, Liquidity Ratio, Balanced Panel Fixed Effect Regression Model

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Keywords

Determinants of liquidity, Ethiopian Private commercial banks, Liquidity ratio, Panel fixed effect regression mode

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