Determinants of commercial banks liquidity 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. The main objective of this study is to examine determinants of Ethiopia commercial banks liquidity. In order to achieve aforementioned objective of the study, quantitative and explanatory research design were adopted. The data covers the period from 2000-2019 for the sample of selected seven commercial banks among seventeen commercial banks based on year of establishment. Secondary data were collected from the selected seven commercial banks using purposive sampling technique. The fixed effect panel data regression technique was used by econometric package Eviews 9. The findings of the study showed that, nonperforming loan, exchange rate fluctuation, loan growth, interest rate spread and bank size have statistically significant negative impact on commercial banks liquidity. On the contrary, 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, national Bank of Ethiopia has to consider the existing economic conditions and promote favorable environment to the development of the financial sector.