The Effects of Liquidity on Financial Performance of Selected Private Commercial Banks in Ethiopia

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The main purpose of this study is to examine the effect of liquidity in the financial performance of selected private commercial banks. a total of 8 banks were taken purposefully taken by considering the operation time as criteria of selection and the annual audited financial report were analyzed from the period 2010 to2019 in doing so explanatory research design, Pearson correlation and multiple linear regression analysis were applied. In conducting this study ROA and ROE taken as dependent variable whereas Liquidity Risk, Market concentration, capitalization, asset quality, operational efficiency and inflation were taken as independent variable the findings of this study confirm that Liquidity indicators have statistically significant effect on Financial performance of selected private commercial banks liquidity dimensions; Liquidity Ratio, Asset Quality, Operational efficiency, Capital Adequacy and Market Concentration were found to exert a unique influence to profitability indicators of ROA & ROE, implying that these factors has a good prediction power on the performance of commercial banks in Ethiopia. It has been recommended that, maintaining optimal level of liquidity is essential for all commercial banks to survive in the sector by developing sound asset quality management through applying good follow-up on Loans structures, by strength their capital structure through approaching a very good capital adequacy management, creating strong follow up that helps on maximizing their operational efficiency via controlling cost and maintaining the desire profit even in unforeseen situations. Since maintaining the preferred and highest level of liquidity is essential for the existence, survival and success of the banking sector in every conditions.



Market Concentration, Operational Efficiency, Profitability, Inflation