Abstract:
The objective of the study was to investigate the effect of Asset liability management on the liquidity risk on the
selected seven private commercial banks in Ethiopia. The study adopted explanatory research design in its
methodology and the researcher chose to study on private commercial banks due to availability of needed data and
convenience. The targeted population for this study is Ethiopian private commercial banks operating for a decade
(2005-2014) and the sample banks included in this study consisted of seven private commercial banks operating in
Ethiopia. The study was used secondary data source and collected from audited financial statements reported by
National Bank of Ethiopia and commercial banks from 2005-2014 fiscal periods to describe the magnitude of asset
liability management indicators on liquidity risk trend indicators. Then, the collected panel data were analyzed and
described by basic statistical techniques such as descriptive analysis, trend analysis, GLS fixed effect regression
analysis were employed by using STATA version 12.0. The results of the regression analysis shows that there is a
positive significant relationship between explanatory variables return on equity (ROE), the capital adequacy ratio
(CAR), and negative significant relationship between independent variables the Loan to deposit ratio (LTD), the size
of the bank and insignificant negative relationship between independent variable the Return on assets (ROA) on the
dependent variable i.e. liquidity risk of private commercial banks. The findings of the analysis conclude that
explanatory variables have an effect on the liquidity risk of private commercial banks in Ethiopia. The study gives
the following recommendations: Commercial banks need to place greater emphasis on developing an integrated
view of risks facing the banks; Asset liability committees and risk managers should implement strong and
comprehensive balance sheet management approaches; management should also ensure there are effective liquidity
management strategies. Lastly, this research study forms the basis for further research to be extended to other
financial institutions that were relevant to the study such as public commercial banks, Microfinance institutions
(MFIs) but were not covered. A further research could also be carried out on the role of Asset liability committee
with a view to coming up with recommendation to strengthen its role in the management bank risks.
