Abstract
This study examines the conundrums of the liquidity determinants of commercial banks in Ethiopia. The study employed a causal research design by utilizing data from 2011 to 2021. The study unit of analysis is 15 commercial banks in Ethiopia. It utilized General Methods of Moment (GMM) dynamic panel regression. The finding showed that bank profit, interest rate margin, concentration ratio, and inflation have significantly adverse effects on bank liquidity. However, capital adequacy has no significant effect on the bank's liquidity. Besides, the growth of the gross domestic product and exchange rate significantly enhance the bank's liquidity. The study urges bank management and regulatory bodies to search for the optimum trade-off point between profit and interest rate spread at the required level of liquidity. Besides, policymakers and regulators should take measures that neutralize the detrimental effect of the market structure of the banking industry. Since inflation and money supply (M2) negatively affect liquidity, it is vital to transform macroeconomic variables into a robust institutional mechanism to enhance liquidity. Generally, the study recommends continued supervision and support to shield banks from a liquidity crunch.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
