DETERMINANTS OF LIQUIDITY RISK: EVIDENCE FROM COMMERCIAL BANKS OF ETHIOPIA

Abstract

This study examined the determinants of liquidity risk in commercial Banks of Ethiopia. Data were collected from pri ma r y and secondary data sources. Questionnaires were used as instrument of primary data collection. The study used descriptive design and explanatory research design. Quantitative research focuses on determining the relationship between variations of independent and dependent variables. Accordingly four banks are selected using purposive sampling techniques. Out of 233 total employees of credit and risk management, 78 of them were participated in this study. The study employed two methods of data analysis in the form of descriptive and inferential statistics. Descriptive statistics, measures of central tendency and as a part of inferential analysis, regression and correlations are used. I t was found that liquidity position of commercial banks was excess. The factors that influenced liquidity risk management are absence of secondary markets, lack of enough financial instruments and absence of strong management information system. The banks should improve their liquidity risk management system and develop liquidity contingency plan. The NBE should introduce modern day supervisory tool such as risk based supervisory approach.