Abstract:
The purpose of the study was to examine the determinants of bank liquidity in selected Ethiopian commercial banks. For this study, one dependent variable (bank liquidity) and ten independent variables (bank size, non-performing loans, capital adequacy, return on assets, interest rate, loans and advances, loan growth, real GDP, inflation, and unemployment) were used. The appropriate research design that was able to explain the casual relationship between the dependents and independents was an explanatory type. The research approach employed was a quantitative; the type of data employed in this study was only secondary data that was obtained through document reviews, mainly from the records held by the NBE. The total population of the study included all 27 commercial banks currently operating in Ethiopia. From this total population, the researcher considered a non-probability type of sampling technique, specifically a purposive type. Therefore, a sample of 16 banks with 14 year data from 2010 to 2023 was used for examining the banks' liquidity. Among the ten (10) variables employed in this study, eight of them (bank size, non-performing loans (NPLs), capital adequacy, return on assets, interest rate, loans and advances, loan growth, and unemployment rate) were statistically significant effects of banks liquidity, while GDP and inflation were statistically insignificant effects on banks liquidity. The regression model explained 60% of the variation in the bank's liquidity with strong statistical significance, though some variability remained unexplained. Based on the main findings of the study, the recommendations were forwarded so that regulators, banks, and investors can manage the complexities of NPLs, bank size, and capital adequacy to support a stable and efficient financial system. Review and Adjust Regulatory Frameworks, Enhance Monitoring and Stress Testing, Promote Transparency and Reporting, Adopt Conservative Liquidity Policies, Manage Operational Complexity, and optimize capital deployment. While maintaining higher capital adequacy is important for resilience, banks should also carefully evaluate the opportunity costs associated with holding large capital buffers
