Determinants of Banks Liquidity: Empirical Evidence Using Panel Regression Analysis on Selected Big Asset commercial banks in Ethiopia.

Abstract

The aim of this study is to examine determinants of big asset commercial banks liquidity in Ethiopia by using panel data of seven selected big asset commercial banks from year 2000 to 2016. The previous research that has been conducted in Ethiopia by researchers on the determinant of commercial bank liquidity is some limitations on the method and is not covered all the determinate factors. Hence, this study aims to fill this gap. In view of this fact, the significance of this study is providing valuable information to bank managers in order to enhance their bank liquidity and it enables them to give a due emphasis on the identified variables. The study used fixed effect and dynamic panel regressions models to investigate factors that determine the liquidities of big asset commercial banks. To obtain information relevant to the study, secondary data was used. Besides, in the study all operational big asset commercial banks in Ethiopia were taken as study population and purposive sampling method was used to select sample from this population. The findings of the study show that among the bank specific variables; bank size, loan growth, return on asset and Interest ratemargin had significant impact on the determination liquidity of Ethiopian big asset size commercial banks measured by all the three measurements of liquidity i.e. L1, L2 and L3. And among the macro-economic variables real deposit Interest rate had statistically significant impact on liquidity. Similarly, the dummy variables government policy and the previous one lag liquidity had statistical significant impact on liquidity. Hence, bank specific variables havemore statistically significant impact on the determination of liquidity of Ethiopian big asset commercial banks, since they are internal variables that can be controlled by management, special emphasis shall be given to those significant variables