“Determinants Of Bank Liquidity And Their Impact On Profitability Of Private Commercial Banks (Emperical Study On Awash Bank Of Ethiopia)”

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statements of the bank, obtained from national bank of Ethiopia (NBE), awash bank annual report, published and unpublished materials that reports as determinants of bank liquidity, by owners and other responsible bodies.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.