Factors Affecting Liquidity Of Selected Commercial Banks In Ethiopia

This study examines the bank-specific and macro-economic factors affecting bank liquidity forrneight commercial banks in Ethiopia, covering the period of 2002-2013 by using balanced fixedrneffect panel regression. To this end, the study adopts a mixed methods research approach byrncombining documentary analysis and in-depth interviews. The findings of the study show thatrncapital strength, interest rate margin and inflation had statistically significant and positivernrelationship with banks’ liquidity. On the other hand, loan growth had a negative andrnstatistically significant relationship with banks’ liquidity. However, the relationship forrnprofitability, non-performing loans, bank size and gross domestic product were found to bernstatistically insignificant. The study suggests that focusing and reengineering the banksrnalongside the key internal drivers could enhance the liquidity position of the commercial banksrnin Ethiopia. Moreover, banks in Ethiopia should not only be concerned about internal structuresrnand policies, but they must consider both the internal environment and the macroeconomicrnenvironment together in developing strategies to improve the liquidity position of the banksrnKey words: Ethiopian commercial banks, determinants of liquidity, liquidity ratios, liquidityrnrisk, panel data regression analysis.

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