| Abstract: | The main purpose of the study was to assess the liquidity risk management practices and
challenges of Private commercial banks in Ethiopia. To deal with the problem, fundamental
research questions were formulated weather banks are managed liquidity risk in accordance
with the Basel Principles or not. Moreover, liquidity risk exposures of each banks
performance were reviewed during the study.
To conduct the study, descriptive method was employed. Purposive sampling was used in the
selection of each bank and the respondents from the respective bank. Thus, a total of 30
respondents participated to the sources of primary data for the study.
Data were collected through questionnaire and annual reports of each commercial bank. The
data collected from primary and secondary sources were organized using tables and graphs
and interpretation was made on the data using quantitative and qualitative methods.
The findings of the study revealed that the liquidity risk management practice of private
commercial banks in Ethiopia is somewhat partially fulfilled comparing against best
principles of Basel. There are no standardized and centralized liquidity risk management
practices which can able to address the basic principles for managing liquidity risk. The
main challenges most of the private banks faced as per this study are NBE bill purchase
policy imposed on private commercial banks, financial innovation and global market
development and the increasing real time nature of payment and settlement system.
Moreover, all private commercial banks liquidity position has been deteriorated from year to
year and banks should work hard to overcome the problem.
Finally, it is recommended that Banks should improve or upgrade their liquidity risk
management system in crucial elements of liquidity risk management and they should also
diversify their source of fund and actively monitor their intraday liquidity position in order to
meet their business objectives. Moreover, NBE should be actively monitoring the existing
liquidity risk problems by reviewing the policies and conducting close follow up |
