Abstract:
The general objective of the study is to examine factors affecting liquidity and their impact on
profitability of private commercial banks, in case of awash bank of Ethiopia. In preparing this
research only secondary information was used. The secondary data was obtained from audited
financial statements of the bank, obtained from national bank of Ethiopia (NBE), awash bank
annual report, published and unpublished materials that reports as determinants of bank liquidity,
by owners and other responsible bodies. Explanatory research design, with a quantitative research
approach was used to establish the causal effect relationship between dependent and explanatory
variables. For this study the researcher used a purposive sampling technique from which awash
bank branches which have or can provide 20 years’ data, were selected. The analysis process was
applied quantitative technique of data presentation using tables and percentages. In this study, to
analyze the collected data, both correlation and multiple linear regression data analysis methods
were employed. The result of the study reveals that higher levels of nonperforming loans appear
to positively influence liquidity, a wider interest rate spread, which is the difference between the
lending and deposit rates, enhances liquidity due to the increased profitability from lending,
enabling banks to maintain a higher level of liquid assets. Larger banks tend to have lower
liquidity levels and this may result from their greater involvement in less liquid, longer-term
investments or the confidence that they can access capital markets or central bank facilities when
needed.
