Effect of liquidity risk on the performance of banks in Ethiopia: The case of selected private commercial banks.
| dc.contributor.advisor | Kelifa Srmolo (PhD) | |
| dc.contributor.author | Yisehak Hailemariam | |
| dc.date.accessioned | 2025-03-06T14:04:07Z | |
| dc.date.available | 2025-03-06T14:04:07Z | |
| dc.date.issued | 2024-06-19 | |
| dc.description.abstract | This study investigates the Effect of liquidity risk on the financial performance of commercial banks, with a specific focus on Ethiopian banks. The analysis employs data from Ethiopian commercial banks, encompassing financial statements and relevant economic indicators, ten commercial banks operating in Ethiopia over a period of ten years were selected based on their performance and years of establishment. The study analyzed seven variables that are known to influence the financial performance of commercial banks. Panel data analysis was conducted using data from 2013 to 2022, resulting in a total of one hundred observations. To indicate the effect of liquidity risk on the performance of banks financing gap ratio (FGR), liquid asset to total asset ratio (LATAR), loan-toasset ratio (TLA), cash reserve ratio (CRR), bank size, GDP growth rate, and inflation rate were used in this study while the financial performance of commercial banks was measured by the Net Interest Margin (NIM).The study employed descriptive statistics to present the data, followed by a correlation matrix and regression analysis. Before running the regression analysis, a model specification test was used to select an appropriate model that satisfied the assumptions of a classical linear regression model. Based on the results of the model specification test, a random effects model was chosen for the study. The multiple regression analysis revealed that the Financing Gap Ratio (FGR) has a positive and statistically significant effect on NIM. This suggests strategic management of financing gaps, a key liquidity risk variable, is associated with higher profitability for Ethiopian banks. However, other variables like Liquid Asset Ratio (LATAR), Loan-to-Asset Ratio (TLA), Cash Reserve Ratio (CRR), bank size, GDP growth, and inflation did not have significant individual effects on NIM. Additionally, the analysis identified significant variation in NIM across different bank groups. In Conclusion this study highlights the importance of strategic liquidity management for Ethiopian banks while maintaining adequate liquidity is crucial, actively managing financing gaps can contribute to higher profitability. Further research is needed to explore the reasons behind the non-significant effects of other variables and the observed group-level heterogeneity in NIM. Keywords: liquidity risk, financial performance, commercial banks, financing gap, panel data analysis, random effects model. | |
| dc.identifier.uri | https://etd.aau.edu.et/handle/123456789/4942 | |
| dc.language.iso | en | |
| dc.publisher | A.A.U | |
| dc.title | Effect of liquidity risk on the performance of banks in Ethiopia: The case of selected private commercial banks. | |
| dc.type | Thesis |