DETERMINANTS OF LIQUIDITY OF COMMERCIAL BANKS IN ETHIOPIA

Abstract

The main objective of this paper was to study and identify the main determinants of Ethiopia commercial banks liquidity. In order to achieve the objective a secondary source of data were collected from eight commercial banks in the sample covering the period from 2005 to 2016 and analyzed them with panel data regression analysis. The result of regression analysis showed that Actual reserve ratio had positive and statistically. Bank size, loan growth and GDP had negative and statistically significant impact on banks liquidity measured by Liquid asset to total asset. Capital adequacy, inflation and non performing loan had insignificant effect on liquidity. Since, commercial banks do not respond to the dynamics of economic growth which can be taken as an indication of ineffective competition and efficiency in the Banking sector, NBE should come out with strict rules and regulations for control mechanism of firm specific and macroeconomic factors.