Liquidify and Bank Performance of Ethiopian Banking Industry

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Eeahhy and Folitable bankt can contribute immensely b the development of fnancial seclor in particulor and the counlry's deltelopmenl in generul. The study employed autoregrcssi|e distributed lag (ARDL) to examine the relationship and behavior of liquidity and pro/ilability of the commercial banking induslry in Ethiopia. Quarterly consolidated lnancial statements lhat co|er the period 1998 Q3- 2017 Q4 v'ere usedlor this stuiy. Augme ed Dickey Fuller (ADF) vasusedto test for unit rcot. In attempt to draw wlid conclusion, diagnostic rcss t4tere carried out for serial correlation, heterosceddsticity, and normaliry. In order to check the stability of long-fut1 coeffcients that form the eftor-correction lerm in combinalion 'with short-run dynamics, cumulati,,te sum ofrecursive residuals test (CUSUM and the cumulalive sum ofsquares ofrecursive residuals tesl (CUSUMQ) is applied to fie residuals of the nodels. The estimation resuh of the error correction model shovs that the speed of adjustment of liquidiry and prcrttability to long run equilibrium isfaster in the commercial banking industry o:fElhiopia. The results of ARDLestimalion shorrs that Funding Liquidity Risk, over allLiquidity Position (i.e. Ratio of Liquid Assets to Total Deposit), Bank size measured as a Natural logarithm of lotal asset are key determinants oflhe Net l terest Margin bolh in lhe shorl ahd long term.


A thells submltted to tbe Deprtment ofAccounting end Finrnce ofAddis Ababa Unlverslty ln pertiol fulfillment ofthe rcquirements for the averd ofthe Degree of Mrrters ofscienco in Accounting and Flnance


Error correction model, Commercial banking industry, Granger causality