2025/07/17 by BELAY ABERA
#Determinants #Liquidity Risk #and Ethiopian commercial banks
paper · doi:10.20372/nadre:9226
ABSTRACT Liquidity risk arises from the fundamental role of banks in the maturity transformation of short-term deposits into long-term loans. Large scale withdrawal of deposits may create a liquidity trick for banks but this may not be always the primary source of liquidity risk. The main objective of this research was to assess the determinants of liquidity risk in Ethiopian commercial banks by using panel data of eleven commercial banks from year 2013 to 2020. The study employed explanatory research design and quantitative approach since the researcher used quantitative secondary data. The bank's Audited financial statement, National Bank of Ethiopia and Ministry of finance reports was the main source for the study. The study had a population of 17 commercial banks in Ethiopia and out of the total population only 11 commercial banks was included by using simple random sampling technique because it is important to give equal chance to all commercial banks and it is reliable to generalize. Loan minus deposit to total asset ratio was used as measurement for liquidity risk. The fixed effect regression model and correlation analysis was used to analyze the data using STATA version 14 software. The fixed effect regression model revealed that from internal bank specific explanatory variables bank size, capital adequacy and loan growth has significant positive influence on Ethiopian commercial banks liquidity risk. Inflation rate also has significant positive impact on liquidity risk of Ethiopian commercial banks from external macroeconomic variables. However, according to the study return on asset, operational inefficiency, RGDP and lending interest are not powerful variable to influence liquidity risks of Ethiopian commercial banks. Finally, possible recommendations were forwarded to the concerned bodies to manage liquidity risk of Ethiopian commercial banks such as each bank should have an agreed strategy for the day to day management of liquidity position of each bank. This strategy should be communicated to each staffs of the organization; each bank should periodically review its effort to establish and maintain relationship with depositors and to maintain the diversification of liabilities. For example the banks should design attractive saving products to attract deposits and the government should devise policies to control inflation of the country because inflation affects liquidity risk of Ethiopian commercial banks.