Determinants of Liquidity of Commercial Banks of Ethiopia
No Thumbnail Available
Date
2016-01
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
The purpose of this research is to identify the factors significant to explain Ethiopian commercial
Banks liquidity. This study has categorized the independent factors into bank specific factors and
macroeconomic factors. The bank specific factors include Bank Size, Capital Adequacy,
Profitability, Non-Performing Loans, and Loan Growth while the macroeconomic factors include
Gross Domestic Product, General Inflation and National bank Bill. The panel data was used for
the sample of eight commercial banks in Ethiopia from 2002 to 2013 year and estimated using
Fixed Effect Model(FEM), data was present by using descriptive statistics and the balanced
correlation and regression analysis for liquidity ratios was conducted. The findings of the study
show that capital strength and profitability had statistically significant and positive relationship
with banks’ liquidity. On the other hand, loan growth and national bank bill had a negative and
statistically significant relationship with banks’ liquidity. However, the relationship for inflation,
non-performing loans, bank size and gross domestic product were found to be statistically
insignificant. The study suggests banks must have increase their outreach to tens of millions of
people by openings up more and more branches every year through country, and have
significantly improve their banking service by introducing new product and services like Agent
banking, Mobile banking and Internet Banking through the application of modern technology.
Moreover, banks in Ethiopia should not only be concerned about internal structures and policies,
but they must consider both the government regulation and the macroeconomic environment
together in developing strategies to improve the liquidity position of the banks.
Key words: Ethiopian commercial banks, determinants of liquidity, liquidity ratios, liquidity
risk, panel data regression analysis.
Description
Keywords
Ethiopian commercial banks; determinants of liquidity; liquidity ratios; liquidity risk; panel data regression analysis