LIQUIDITY RISK MANAGEMENT IN COMMERCIAL BANK OF ETHIOPIA: PRACTICES AND CHALLENGES

Abstract

Liquidity risk is a major type of risk that could easily bring an institution to its destruction especially in the banking industry. It thus needs to be closely monitored and mitigated. This research is conducted with the objective of finding how risk management, specifically liquidity risk management is undertaken in commercial bank of Ethiopia. It pays a special attention to the processes of risk identification, risk analysis and monitoring. In doing so, the bank’s (adherence) to the principles of sound liquidity management recommended by the Basel committee for banking supervision was tested. The study used exploratory and quantitative data analysis after collecting data from primary and secondary sources, mainly through questionnaires. The questionnaires were distributed to a selected group of employees who are directly related to risk management or fund management. The results then are interpreted to have an understanding of the position where the bank is standing in comparison with international standards in liquidity risk management.