Assessing the Determinants of Bank Liquidity: Experience from Tanzanian Banks
This paper identifies the determinants of banks’ liquidity in Tanzania. The panel regression was employed for secondary data extracted from published bank financial statements of 49 banks in the sample, covering the period from 2006 to 2013. The results revealed that capital adequacy, bank size and interest rate margin had a negative and statistically significant effect on banks’ liquidity, while non-performing loans and inflation were found to have positive impact on bank’s liquidity. On the other hand, the profitability and GDP growth rate had statistically insignificant impact on banks’ liquidity, although they both had expected positive relationships. According to the study results smaller banks are more liquid because they mainly focus on short-term loans that mature shortly, and are therefore are believed to be more liquid as compared to bigger banks that tie up most of their capital on long-terms loans that mature after some years.
Keywords: Tanzanian banks, liquidity ratio, liquidity risk, determinants, capital adequacy
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