Determinants of liquidity in Ethiopian private commercial banks

Abstract

Bank Liquidity has one of the major concerns for private banks and thus achieving the optimum level of liquidity is fundamental. The main objective of this study was to identify the determinants of liquidity of private commercial banks in Ethiopia. In order to achieve the research objectives, secondary data were collected from a sample of seven private commercial banks in Ethiopia over the period from 2005 to 2020.Bank specific and macroeconomic variables were analyzed by using the pooled OLS regression model. Bank’s liquidity was measured in the ratio of loans todeposit. The findings of the study revealed that, capital adequacy, bank size, and deposit had positive and statistically significant impact on liquidity; while bank loan have negative and statistically significant impact on liquidity of Ethiopian private commercial banks. However, real GDP growth rate, interest rate margin have no statistically significant effect on the liquidity of Ethiopian private commercial banks.This study recommends that private commercial banks in Ethiopia should be more concerned withthe bank specific (internal environment)with the macroeconomic environment in addition to formulating strategies to enhance their liquidity position