Determinants of Banks Liquidity: Evidenced from commercial banks in Ethiopia

Abstract

This study examines the determinants of liquidity of commercial banks in Ethiopia. Both bank specific and macroeconomic data over the period from 2011 to 2020 were collected and analysed using panel data regression model. In order to achieve the objective a secondary sources of data were collected and the quantitative approach to research was applied from biggest commercial banks in Ethiopia. The internal factors used in this study include asset quality, adequacy of capital, bank size, loan growth, return on asset and deposit whereas the external factors are real GDP growth, inflation, Interest rate margin and NBE bills. Based on the regression result, bank size, loan growth, return on asset, deposit, Interest rate margin and NBE Bills had significant impact on the liquidity of Ethiopian big commercial banks. In addition, the study have found that bank liquidity is positively related to capital adequacy, profitability interest rates margin and inflation, and negatively related to bank size, deposit, and NBE bills. Hence, bank specific variables have more statistically significant impact on the determination of liquidity of Ethiopian commercial banks,