The effect of bank regulation on profitability and liquidity of private commercial banks in

Table 4.8 JarqueBera test for model one 46
Chart 4.2 Normality test for model two Table 4.9 Normality test for model one 47
Table 4.10 JarqueBera test for model one 47
Table 4.2.Correlation Analysis 48

4. 
   Random Effect (RE) Versus Fixed Effect (FE) Models 48
   

Table 4.11 Hausman test for model one 49

5. 
   Analysis and Interpretation of Regression Result 49
   

Table 4.12 Regression for model one 50
Table 4.13 Regression for model two 52
CHAPTER FIVE 56
CONCLUSION AND RECOMMENDATION 56

1. 
   Conclusion 56
   
2. 
   Recommendation 57
   

Reference 58
Annex 1 64

List of Acronyms

AIB	Awash International Bank
BOA	Bank of Abyssinia
BZ	bank size
CA	capital adequacy
CBO	Cooperative Bank of Oromia
CBA	Cost and Benefit Analysis
CLRM	Classical Linear Regression Model
CR	Capital requirement
DB	Dashen Bank
DB	Deposit Fund
DW	Durbin–Watson
EI	Equity investment
JB	Jarque Bera
LRR	legal reserve requirement
LIQU	Liquidity
NBE	National Bank of Ethiopia
NBEB	NBE bill purchase requirement
NIB	Nib International Bank
OLS	Ordinary Least Square
ROA	Return on Assets Ratio
ROE	Return on Equity Ratio
UB	United Bank
WB	Wegagen Bank
ZB	Zemen Bank

List of Tables
Table 3. 1Summarized Description of the Variables and Their Expected Relationship 39
Table 4. 1 Descriptive Statistics 40
Table 4.2.Correlation Analysis 42
Table 4.3 Heteroskedasticity test of model one 43
Table 4.4 Heteroskedasticity test of model two 44
Table 4.6 Autocorrelation test for model two 45
Table 4.5 Autocorrelation test for model one 45
Table 4.7 Normality test for model one 46
Table 4.8 JarqueBera test for model one 46
Table 4.9 Normality test for model one 47
Table 4.10 JarqueBera test for model one 47
Table 4.2.Correlation Analysis 48
Table 4.11 Hausman test for model one 49
Table 4.13 Regression for model two 52
Table 4.12 Regression for model one 50

List of Figures and chart

Chart 4.2 Normality test for model two 47
Chart 4.1 Normality test for model one 45

ABSTRACT

Banking occupies one of the most important positions in the modern economic world. It is necessary for trade and industry. The objective of this study was to determine the relationship between bank regulations with bank financial performance and liquidity. Regulations are the independent variable while financial performance and liquidity are the dependent variable. Financial performance is measured using financial ratios of return on equity while liquidity is measured by current asset divided by current liability. The study used independent variables that are equity investment, legal reserve requirement, capital requirement, capital adequacy, management efficiency and NBE bill purchase requirement. The study used multiple linear regressions models to investigate bank regulations that have impact on the profitability and liquidity of commercial banks in Ethiopia. To obtain information relevant to the study, secondary data was used. Besides, in the study all operational commercial banks in Ethiopia were taken as study population and purposive sampling method was used to select sample from this population with in the period of study is between 2008 and 2017 with a total of 70 observations. The regression result showed that capital adequacy and management efficiency had negative and significant effect on profitability of private commercial banks in Ethiopia and the remaining regulatory variables legal reserve requirement, capital requirement, NBE Bill Purchase and equity investment had insignificant effect on profitability of private commercial banks. While a legal reserve requirement had positive and significant effect on liquidity of private commercial banks in Ethiopia. NBE Bill Purchase and equity investment had positive and insignificant effect on liquidity of private commercial banks in Ethiopia mean the pre and post policy periods comparison revealed that a relatively better liquidity record for private commercial banks during the time of post policy restriction and the remaining two regulatory variables capital adequacy and capital requirement had negative and insignificant effect on liquidity of private commercial banks. Therefore, the study recommends that National Bank of Ethiopia and Ethiopian private commercial banks should give due attentions on bank regulations to enhance private banks profitability significantly and to stable as whole the macro economy of the country.

Key words: NBE regulations, banking liquidity, banking profitability; private banks

1.