FACTORS AFFECTING LIQUIDITY IN SELECTED PRIVATE COMMERCIAL BANKS IN ETHIOPIA

Abstract

Liquidity creation is the main concerns of commercial banks because banks are mainly involved in deposit mobilizing and lending which have direct impact on their liquidity. Hence, this study examines the bank specific, industry specific and macro-economic factors that affect liquidity of Ethiopian commercial banks. The data covered the period from 2000-2017 GC for the sample of selected six private commercial banks. Quantitative research approach and explanatory design were adopted in carrying out this research. Secondary data were collected from the selected six private commercial banks using purposive sampling technique. The fixed effect regression technique was used by econometric package EViews9. The findings of the study shows that, Bank size, Capital adequacy ratio, Reserve requirement, Interest rate spread, Loan growth, and NBE bill purchase have negative and statistically significant impact on liquidity. On the contrary, Deposit growth, Profitability, Non-performing loan, Foreign exchange rate fluctuations and Inflation have positive and statistically significant impact on liquidity. The researcher recommends, banks should not only be concerned with internal policy rather, they have to consider both internal and external factors to improve operational efficiency and optimize their liquidity position. On the other side the policy maker, NBE has to consider the existing economic conditions and promote favorable environment to the development of the financial sector.