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

RQ. Which NBE regulations significantly affect the profitability of private commercial banks in Ethiopia?


RQ. Which NBE regulations significantly affect the liquidity of private commercial banks in Ethiopia?

6. Hypotheses of the study

In line with the broad objective describe above, the following hypotheses are also formulated for investigation based on theories and past related empirical studies.

Hypothesis 1: Requirement of NBE bill purchase has negative significant impact on the profitability of private commercial banks.

Hypothesis 2: Legal reserve requirement has negative and significant effect on profitability of Private commercial banks in Ethiopia.

Hypothesis 3: Capital requirement has positive and significant effect on profitability of Private commercial banks in Ethiopia.

Hypothesis 4: Equity investment has positive and significant effect on profitability of Private commercial banks in Ethiopia.

Hypothesis 5: Requirement of capital adequacy has negative significant impact on the profitability of private commercial banks in Ethiopia.

Hypothesis 6: Requirement of NBE bill purchase has negative significant impact on the liquidity of private commercial banks in Ethiopia.

Hypothesis 7: Legal reserve requirement has positive and significant effect on liquidity of Private commercial banks in Ethiopia.

Hypothesis 8: Capital requirement has positive and significant effect on liquidity of Private commercial banks in Ethiopia.

Hypothesis 9: Equity investment has positive and significant effect on liquidity of Private commercial banks in Ethiopia.

Hypothesis 10: Requirement of capital adequacy has negative significant impact on the liquidity of private commercial banks in Ethiopia.

7. Significance of the research

• 
  The study identified and draws some conclusions about the impact of NBE regulations on profitability and liquidity of Ethiopian private commercial banks. Thus, it provides direction to the management of the banks and policy makers to take remedial action if needed.
  
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  There is no sufficient research in Ethiopia with the objective of comprehensive analysis of the impact of NBE regulations on profitability and liquidity of private commercial banks in Ethiopia. As a result, this study makes a number of contributions to other researchers as a source of reference and as a stepping stone for those who want to make further study on the area afterwards.
  
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  By establishing the effect of regulation on the growth of commercial banks it will help policy makers formulate new policies in that they will be informed about the effect of their policies will have on the banking sector and the economy as a whole. They will be able to ascertain which aspects of regulation can be geared towards the accomplishment of development goals without compromising on prudent regulation and the stability of the financial sector, Sinha et al. (2011). They will also know how they can supplement development objectives with other well designed financial sector policies.
  

8. Scope of the study

The scope of the study restricted to seven private commercial banks in Ethiopia that are registered by the NBE and operating in the Ethiopian banking industry and have at least ten years‘ data for the consecutive years (2007/08-2016/17). These banks are selected since they are older than the other private commercial banks and are expected to have more experience on the handling of liquidity problem and maximization of profitability.

9. Organization of the Paper

This paper consists of five chapters with different sections and sub-sections and it is structured as follows. Chapter one presents the introduction for the main part of the paper. Chapter two reviews the most significant theoretical and empirical studies including Ethiopian banking business environment. Chapter three focuses to presents methodology of the study. Chapter four also provide the interpretation and analysis of econometric model outcomes. Chapter five as usual gives conclusion and recommendation.