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