Liquidify and Bank Performance of Ethiopian Banking Industry
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Date
2020-03
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A.A.U
Abstract
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.
Description
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
Keywords
Error correction model, Commercial banking industry, Granger causality