DETERMINANTS OF LIQUIDITY IN COMMERCIAL BANKS OF ETH OF SELECTED PRIVATE BANKS)

Abstract

Liquidity is one of the major concerns for banks and thus achieving the optimum level of liquidity is crucial. Liquidity management is a concept that is receiving serious attention all over the world especially with the current financial situations and the state of the world economy. 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, data was collected from a sample of six private commercial banks in Ethiopia over the period from 2001 to 2015. Bank specific and macroeconomic variables were analysed by using the balanced panel fixed effect regression model. Bank’s liquidity is measured by liquid asset to deposit ratio. For the purpose of this study nine variables have been taken, categorized under bank specific and macroeconomic. The findings of the study revealed that, bank specific variables like, bank size (Size) and loan growth (LG) have negative and statistically significant impact on liquidity; while from the macroeconomic variables gross domestic product (GDP) was negatively, inflation (INF) was positively and statistically significant impact on liquidity. And short term interest rate (STIR) was negatively and profitability measured by (ROA) was positively and statistically significant impact on liquidity but opposite sign to the hypothesis. However, capital adequacy (CAP), non-performing loan (NPL), and interest rate margin has statistically insignificant impact on liquidity of Ethiopian private commercial banks