Determinants of Liquidity Risk of Commercial Banks in Kenya

Abstract

This study sought to establish the determinants of liquidity risk oncommercial banks in Kenya. The study employed a descriptive research design. A census targeting the 43 commercial banks licensed in Kenya was conducted. The determinants of liquidity risk were evaluated by regressing capital adequacy ratio, liquid assets ratio, ownership type, size and leverage on loan deposit ratio. The multiple regression analysis indicated that capital adequacy ratio and leverage were individually significant determinants of liquidity risk. Liquid asset ratio, ownership type and size individually were not significant determinants of liquidity risk. The result of F test indicated that collectively capital adequacy, liquid asset ratio, ownership type, size and leverage were significant determinants of liquidity risk. The study concluded that collectively capital adequacy ratio, liquid asset ratio, ownership type, size and leverage were significant determinants of liquidity risk. The study recommends that bank managers can effectively manage liquidity risk by collectively focusing on capital adequacy, liquid asset ratio, ownership type, size and leverage.