Determinants of Commercial Banks Liquidity in Ethiopia

Abstract

Liquidity creation is the main concerns of commercial banks because banks are mainly involved in deposit mobilizing and lending which have direct impact on their liquidity. Hence, this study examines determinants of commercial banks liquidity in Ethiopian. The data covered the period from 2000-2018 G.C for the sample of selected seven commercial banks. Quantitative research approach and explanatory Research design were adopted in carrying out this research. Secondary data were collected from the selected seven commercial banks using purposive sampling technique and macro- economic data are collected from Ministry of Finance and Economic Development (MOFED). The study used both descriptive and inferential statistics. Mean and standard deviation were used as descriptive statistics, where as correlation and panel regressions were used from inferential statistics using Eviews-9.The findings of the study shows that Loan growth, Inflation, Nonperforming loan gross domestic product, and Bank size have negative and statistically significant impact on liquidity. Interest rate spread, and asset quality have positive and statistically significant impact on liquidity. The study suggests that focusing and reengineering the banks alongside the key internal drivers could enhance the liquidity position of the commercial banks in Ethiopia. Moreover, banks in Ethiopia should not only be concerned about internal structures and policies, but they must consider both the internal environment and the macroeconomic environment together in developing strategies to improve the liquidity position of the banks On the other side the policy maker, NBE has to consider the existing economic conditions and promote favorable environment to the development of the financial sector.