DETERMINANTS OF LIQUIDITY OF COMMERCIAL BANKS OF ETHIOPIA

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 panel data was used for the sample of eight commercial banks in Ethiopia from 2010 to 2021 year and estimated using Fixed Random Model (REM), 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 profitability and Capital adequacy had positive and statistically significant relationship with commercial banks’ liquidity. On the other hand, loan growth, bank size, non-performing loan and national bank bill had a negative and statistically significant relationship with liquidity. However, the relationship for inflation and Economic growth were found to be statistically insignificant. The study suggests that the banks in Ethiopia should not only be concerned about internal structures and policies/procedures, but they must consider both the internal environment and the macroeconomic environment together in developing their strategies to efficiently manage their liquidity position and banks must have increase their outreach to people by openings up more and more branches throughout the country, and improve their banking service by introducing new product and services like Agent banking, Mobile banking and Internet Banking through the application of modern technology. In general, the findings of the study reveals that, bank specific variables have more statistically significant impact on the determination of liquidity of Ethiopian private commercial banks, since they are internal variables that can be controlled by management, special emphasis shall be given to those significant variables