Determinants of Banks Liquidity: In Case of Commercial Banks in Ethiopia

Abstract

This study examined the bank specific, regulatory and macro-economic factors that affect liquidity of Ethiopian commercial banks. The data covered the period from 2010-2019 GC for the sample of selected seven commercial banks. Quantitative research approach and explanatory design adopted in carrying out this research. Secondary data was collected from the selected seven commercial banks using purposive sampling technique. The fixed effect regression technique used by econometric package EViews10. The variables are from three factors that, Bank size, Capital adequacy ratio, Profitability and Deposit growth are from bank specific factors, Reserve requirement and NBE bill purchase are from regulatory factors and GDP is from macro-economic factors is selected by researcher. The results of balanced fixed effect panel data regression analysis showed that deposit growth, capital adequacy, bank size and NBE bill purchase had positive effect on liquidity at different significance level. On the other hand, profitability, reserve requirement and gross domestic product affect liquidity of commercial banks in Ethiopia negatively. Keywords: Ethiopian commercial banks, factors of liquidity, fixed effect regression, purposive sampling. DOI: 10.7176/RJFA/13-8-06 Publication date: April 30 th 2022