ASSESMENT OF LIQUIDITY RISK MANAGEMENT

(A case study of Bank of Abyssinia)

A RESEARCH PROPOSAL SUBMITTED FOR THE PARTIAL

FULFILLMENT OF THE BACHELOR OF ARTS IN ACCOUNTING AND
FINANCE

ST MARY’S UNIVERSITY FACULTY OF ACCOUNTING AND FINANCE

Prepared by:
 Samrawit Faris
 Selam Gebrewold
 Helen Bereda

Advisor: Robel Y.

30th Aug, 2021

Addis Ababa, Ethiopia

 Abstract
This study is assigned to assess the liquidity risk management practice in Bank of Abyssinia. In
preparing this research both primary and secondary data will be used. The primary data will be
collected through questionnaires which are going to be held in both open ended and close ended
techniques and interviews to the bank liquidity risk management team, whereas, Secondary data
is going to be obtained from website and literatures. The researcher will use judgmental
sampling for the selection of the sample, and the data collection through the questionnaires and
interview will be organized and analyzed, then tabulation in the form of tables and interpretation
will be made.
 Table of contents
Abstract.......................................................................................................................................................2
CHAPTER ONE..............................................................................................................................................1
1. INTRODUCTION.......................................................................................................................................1
1.1 Background of the study....................................................................................................................1
1.2 Background of the organization.........................................................................................................3
1.3 Statement of the problem...............................................................................................................4
1.4 Research questions............................................................................................................................5
1.5 Objectives of the study......................................................................................................................5
1.5.1 General objective........................................................................................................................5
1.5.2 Specific objective........................................................................................................................6
1.6 Significance of the study....................................................................................................................6
The major benefits of this study will be the following:............................................................................6
1.7 Scope of the study.............................................................................................................................6
1.8 Research design.................................................................................................................................6
1.8.1 Research participants and population........................................................................................7
1.8.2 Data collection procedure..........................................................................................................7
1.8.3 Sampling and sampling technique..............................................................................................7
1.8.4 Analysis of data...........................................................................................................................8
1.9 Organization of the paper..................................................................................................................8
1.10 Ethical considerations......................................................................................................................8
CHAPTER TWO.............................................................................................................................................9
2. REVIEW LITERATURE................................................................................................................................9
2.1 Concept of liquidity and Liquidity Risk...............................................................................................9
2.2 Bank liquidity...................................................................................................................................11
2.3 Risk..................................................................................................................................................11
2.4 Banking risks....................................................................................................................................13
2.4.1 Liquidity risk..............................................................................................................................13
2.4.2 Interest rate risk (IRR)...............................................................................................................13
2.4.3 Market risk................................................................................................................................13
2.4.4 Default or credit risk.................................................................................................................14
 2.4.5 Operational risks.......................................................................................................................14
2.5 Sources of liquidity risk....................................................................................................................14
2.5.1 Lack of cash flow management.................................................................................................14
2.5.2 Inability to obtain financing......................................................................................................14
2.5.3 Unexpected economic disruption.............................................................................................15
2.5.4 Profit crisis................................................................................................................................15
2.6 Measuring liquidity..........................................................................................................................15
2.6.1 Analysis of financial ratio..........................................................................................................15
2.6.2 Cash flow forecasting................................................................................................................16
2.6.3 Capital structure management.................................................................................................16
2.7 Implementing liquidity risk..............................................................................................................17
2.8 Liquidity risk management process.................................................................................................17
2.9 Theoretical review...........................................................................................................................19
2.9.1 Shift ability theory.....................................................................................................................19
2.9.2 Anticipated theory....................................................................................................................19
2.9.3 Liquidity Preference Theory......................................................................................................19
2.10 Empirical review............................................................................................................................20
2.11 Cost budget and time schedule.....................................................................................................24
2.11.1 Cost budget schedule.............................................................................................................24
2.11.2 Time plan................................................................................................................................24
Reference..................................................................................................................................................26
Appendix...................................................................................................................................................29
 CHAPTER ONE

1. INTRODUCTION
1.1 Background of the study
In simple terms, liquidity is a measure of a company`s ability to cover its obligations to creditors
who demand funds at inconvenient times. In other words, if liquidity is not properly handled, a
company may experience illiquidity and even go bankrupt or suffer loss. No manager wants to
lead a company to this situation. That is main reason why companies have to be aware of
liquidity risk management. Managers must be prepared to adjust to negative economic conditions
and potential changes in order to remain competitive and avoid damaging the company`s image
and relationship with stakeholders. (Hawawini, G.; Vialler, C. 2007). Liquidity can also be used
to characterize a firm`s cash or near-cash asset; the more liquid the more liquid asset a
corporation has, the better its liquidity. Liquidity ratios are a type of financial ratio that measures
a company`s liquidity. One such ratio is the current ratio which determines a company’s ability
to pay short term debts as they come due (Van Ness, 2009).

Banks are financial intermediaries that transmit excess money to the economy's deficit sector in
the form of short, long, and short term loans. Banks make saving and capital generation easier in
the economy. The Bank for International Settlements (BIS) defines liquidity as a bank's ability to
support asset growth and meet commitments when they become due without suffering
unacceptable losses, according to BIS (2008). As a result, banks play a critical role in the
maturity transformation of short-term deposits into long-term loans, posing a liquidity risk. As a
result, banks must maintain an ideal level of liquidity in order to maximize profit while also
meeting their obligations (Alemayehu,2016), and should be prepared to deal with shifting
monetary policy which influences general liquidity trends as well as their own transactional
needs and short-term borrowing repayment. (Akhtar, 2007).

Because one of its primary social functions is maturity transformation, often known as time
intermediation, banks have always been vulnerable to liquidity risk. To put it another way, they

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take demand deposits and other short-term money and re-lend them at longer maturities. As a
result, banks can lend the funds for extended periods of time with a reasonable certainty that the
deposits will be available or that equal deposits can be secured from others as needed, possibly
with a minor increase in deposit rates ( Tsignesh, 2012).

According to (Santomero, 1997), banks are in the risk industry. They take on variety of financial
risks when providing financial service, one of which is liquidity risk. Because of their ability to
supply market intelligence, transaction efficiency, and funding capabilities, market participants
seek out the service of this financial institution. The bank does not bear all of the risks associated
with its primary activities, such as those concerning its own balance sheet and basic lending and
borrowing. Banks require liquidity to pay creditors, cover unplanned withdrawals, pursue
alternative investment opportunities, and adjust to changes in loan demand and commitments.

Banks as credit institutions also frequently convert typically short-term liquid liabilities in to
long-term illiquid assets. Banks supply liquidity to consumers with liquidity demand on order to
smooth consumption and investment but they are also vulnerable to liquidity hazard (Webb
David C., 2000).

Liquidity risk is a common byproduct of banking operations. Because of bank normally collects
short-term deposit and loans long-term, the difference in maturities creates liquidity risk and a
cost of liquidity. the time profile of the predicted sources and uses of funds can reflect the bank`s
liquidity condition and banks should manage liquidity gaps within acceptable limits. The
rationale for liquidity risk management is that because the time or the amount of the cash outlays
are uncertain, a financial institution must be prepared with enough cash to meet its obligations.
(Kiyotaki and Moore., 2008). Thus, the aim of this study is to assess how BOA is managing
liquidity risk.

A bank having outstanding asset quality, strong profitability and sufficient capital may fail if it
does not retain appropriate, which is why liquidity risk management has become one of the most
important success determinants for banks. (Crow, 2009).

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This research looks at how the Bank of Abyssinia manages risk by measuring the liquidity risk
using the liquidity ratio and examining current management practices for managing the bank's
liquidity risk.

1.2 Background of the organization

The Bank of Abyssinia (BOA) was created with its current name on February 15, 1996, ninety
years to the day after Emperor Menelik established the historically significant Bank of
Abyssinia.

In terms of shareholders, workers, customers, and branch expansion, the bank has made
significant improvement in recent years. Currently, the bank has 2,226 shareholders, 6,000 staff,
and over 5,000,000 customers, with 600 offices spread over the country. Customers can take
advantage of a variety of services provided by the bank, including a savings account, a youth-
targeted savings program, gift savings accounts, on-site services, safe deposit boxes, foreign
money transfers, and so on. Furthermore, with an authorized capital of 5.5 billion.

The Bank of Abyssinia's vision is to carry on the tradition of Ethiopia's first bank, via constant
innovation and the provision of quality financial systems. The bank's objective is to deliver a
broad range of local and international banking services using trained and motivated staff and
cutting-edge technology. As a result, the focus of these papers is on the current level and
developments of liquidity, as well as their relationship to the performance of the Bank of
Abyssinia.

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1.3 Statement of the problem
The nature of banking business demands that banks invest systematically in asset with varying
degrees of liquidity. On a global consolidated basis there is a better understanding of how banks
manage their liquidity. Banks must be able to control their stability and manage risks in order to
reap the benefit of a well-organized banking system. Liquidity risks refers to the possibility that a
bank will be unable to meet its depositors` communicates. It is one of the most pressing concepts
that banks face today. (Jenkinson,2008). However, in today’s competitive and open economic
system, with strong external influences and sensitive market actors, maintain a defensive
liquidity risk posture and management is extremely tough. (Siddiqi,2008). Liquidity risk
management is a crucial component of any financial institution`s overall risk management
framework, particularly in the financial services industry. (Majid,2003). Banks, as financial
institution must manage liquidity demand and supply in an acceptable manner in order to run
their business securely, maintain good relationship with stakeholders and avoid liquidity crisis.
(Ismal,2010).

The incapacity of a bank to accept decreases in liabilities or fund growth in assets is known as
liquidity risk. Illiquidity refers to a bank's inability to access adequate cash at a fair cost, either
through raising liabilities or quickly converting assets. When banks don't have adequate
liquidity, they can't get the funds they need from debt without converting assets into liquidity at a
reasonable cost. In extreme circumstances, a lack of liquidity might lead to a bank's bankruptcy.
Following it, a loss in finance liquidity resulted in significant suffering (Berehanu 2015).

One of the most important issues to address in order to make a progress is how to ensure that
banks successfully balance their liquidity management in order to remain stable while still
providing liquidity to the market. Policymakers will strive to maintain the country`s sold
economic growth while keeping unemployment and inflation low. In the case of asset liquidity
risk, banks manage liquidity through concentrations and relative market size portfolios as well as
diversification, credit lines or other backup funding and limiting cash flow gaps. Because the
behavior of multiple market participants in a stress scenario must now also be taken into account
liquidity risk management has become increasingly sophisticated. There are internal and external
sources of liquidity risk. Accordingly, banks specific (internal factors) such as, bank size, risk,

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non-performing loan (NPL) and banks external factors (macroeconomic factors) such as, GDP,
financial policy of the country, inflation and financial crisis (Lucchetta, 2007).

Commercial banks in Ethiopia maintain extra liquidity in their accounts, according to studies by
Worku (2006) and Semu (2010) on the factors that influence bank performance and profitability.
However, commercial banks are currently experiencing a severe liquidity constraint, which is
affecting their day-to-day operations.

Andebet (2016) conducted a study on the performance of private commercial banks in Ethiopia
before and after the National Bank of Ethiopia (NBE) issued a directive on April 4, 2011,
requiring private commercial banks to hold 27 percent of gross loan extensions in a 5-year bill
with a 3% annual interest rate. The current state of the bank of Abyssinia's liquidity management
practice will be investigated in this study.

Starting from 2019-2021 liquidity has risen due to certain wars and covid-19 pandemic. The
covid-19 pandemic has made liquidity a pressing issue for banks. So, the researcher will try to
assess how BOA is managing liquidity risk.

1.4 Research questions

 What is the liquidity risk contingency plan in BOA?
 What are the major challenges of liquidity risk management in BOA?
 What looks like the liquidity position of BOA as per the key per liquidity risk indicator?

1.5 Objectives of the study

1.5.1 General objective
The general objective of this study is to assess the liquidity risk management in the case of
Abyssinia bank.

1.5.2 Specific objective

 To evaluate the liquidity risk contingency plan of the company.

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  To assess the major challenges of liquidity risk management of the company.
 To examine the liquidity position of the company as per liquidity risk indicator.

1.6 Significance of the study

The major benefits of this study will be the following:

 It might help to provide relevant and valuable information to decision makers including
managers, investors, depositors and creditors.
 It might help the Abyssinia bank to know how effective they are in managing liquidity
risk.
 It will give an insight about the liquidity risk management in Abyssinia bank.
 It can also assist other researchers in their research and explanations. In addition, it
benefits the financial sector of the economy as well as society as a whole.

1.7 Scope of the study

There is major risk in banking business or banking risks such as interest risk, market, default or
credit risk, operational risk and liquidity risk. This study assesses only about the liquidity risk
management. In conducting this research, we will use analytical type of research because we add
value in existing research. Due to manageability and accessibility difficulty the scope of the
study was limited to employees of Addis Ababa Head Office of BOA.

1.8 Research design

Research design is a master plan or conceptual structure within which research is conducted. It
facilitates the smooth sailing of the various research operations, thereby making research as
efficient as possible yielding maximum information with minimal expenditure of effort, time and
money (Kothari, 2004). The researcher will use non-probabilistic sampling design called
judgmental sampling technique where the researcher selects units to be sampled based on his/her
professional judgment.

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Mixed method research represents a research that involves collecting, analyzing and interpreting,
quantitative and qualitative data in a single study or in a series of studies that investigate the
same underlying phenomenon. (leech N,onwuegbuzie A, 2008)

1.8.1 Research participants and population

To collect adequate information related to the investigation, the investigator relies on employee
working on BOA head office staff. From the total population the researcher took three
departments that are directly related to the subject matter. From the risk and compliance
department, all the expert working in that department is 7 and from the finance department and
cheque clearance officers, which are the total number working there is 6 and the rest 7 experts
working in treasury department selected purposively. The researcher selects 20 employees as a
sample size.

1.8.2 Data collection procedure

To fulfill the purpose of the study, the researcher will use both primary and secondary data.
Primary data will be collected by distributing a hard copy questionnaire to the selected
respondents at BOA employees. The questionnaire method as instrument of data collection will
be used because it provides wider coverage to the sample and also facilitates collection of large
amounts of data.

Secondary data will be collected from different Bank's documents, manuals on employees on risk
management and different books and research articles in the study area.

1.8.3 Sampling and sampling technique

There are two types of sampling methods:
• Probability sampling-involves random selection, allows us to make statistical
inferences about the whole group.
• Non-probability sampling- involves non-random selection based on convenience or
other criteria allowing us to easily collect initial data.
The researcher will use non probability sampling designed called judgmental sampling
technique where the researcher selects units to be sampled based on his/her professional
judgment. The way that it is done is by collecting data from the selected sample area from
BOA and analyzing the responses from the questionnaire. A sample questionnaire will be

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asked to BOA staff at head office. The first step in sampling is to decide on an appropriate
sample size. There are no strict rules for selecting a sample size. One can make a decision
based on the objectives of the project time available, budget and the necessary degree of
precision.

1.8.4 Analysis of data

Data analysis is used to extract useful information from the data and taking the decision based on
the data analysis. The researchers classified the data appropriately for interpretation qualitative
and quantitative. To analyze and interpret the data obtained from the questionnaire, a quantitative
technique will use Percentage. The researcher will use data obtained from the annual report of
the bank considered in this study are percentages, ratios and graphs.

1.9 Organization of the paper

The research report will be divided in to four chapters. The first chapter overview especially
reports and the introduction part the second chapter is a literature review that is a general
explanation of the subject. The third chapter is discussion and analysis and finally the fourth
chapter is recommendations and conclusions.

1.10 Ethical considerations

Voluntary participation of respondents in the research is important. Moreover, participants will
have rights to withdraw from the study at any stage if they wish to do so. They should be aware
about what they will be asked so that they can willingly give responses. The researchers thus
provide sufficient information and assurances about taking part to allow participants to
understand the implications of participating in the questionnaire and to reach a fully informed,
considered and freely given decision about whether or not to do so, without the exercise of any
pressure.

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 CHAPTER TWO

2. REVIEW LITERATURE

2.1 Concept of liquidity and Liquidity Risk

Liquidity risk is the possibility that over a specific time period, the bank will become unable to
settle obligations with immediacy (Drehmann and Nikolaou, 2009). It is a risk arising from a
bank’s inability to meet its obligations when they come due without incurring unacceptable
Losses. This risk can adversely affect both banks’ earnings and the capital and therefore, it
becomes the top priority of a bank’s management to ensure the availability of sufficient funds to
meet future demands of providers and borrowers at reasonable costs.

Banks need liquidity to meet deposit withdrawal and to fund loan demand. The variability of
loan demand and deposit a banks liquidity need. Bank has adequate liquidity when it can obtain
sufficient funds either by increasing liabilities or by converting assets, promptly and at a
reasonable cost. The price of liquidity is a function of market conditions and market perception
of the risks, both interest rate and credit risk reflected banks’ balance sheet activities. If liquidity
needs are not meet through liquid asset holdings. Banks may be forced to restructure or acquire
additional liability under adverse market condition. (Allan, J., Booth, P., Verrall, R., & Walsh, D.
1998).

There are many factors that affect banks own liquidity and in turn affect the amount of liquidity
they can create. These factors have a varying degree of influence on the balance between
liquidity risk and liquidity creation or a bank’s liquidity management. A bank’s assets and
liabilities play a central role in their balancing of liquidity risk and creation. A bank’s liabilities
include all the banks sources of funds. Banks have three main sources of funds: deposit accounts,
borrowed funds and long-term funds. The amounts and sources of funds clearly affect how much
liquidity risk a bank has and how much liquidity it can create. The easier a bank can access funds
the less risk it has and the higher amount of funds it holds the more liquidity it can create, if
willing to do so. Deposit accounts are made up of transaction deposits also known as demand

9
deposits, savings deposits, time deposits, and money market deposit accounts. The borrowed
funds of a bank come from loans from other banks via the Federal Funds market, loans from the
Federal Reserve Bank, repurchase agreements and Eurodollar borrowings. The longer-term
sources of funds for banks are bonds that banks issue and bank capital. Therefore, these two
liabilities are major factors of a bank’s liquidity risk. Demand deposit accounts give banks a
larger cash base and thus are a form of liquidity. Undrawn credit lines are a liquidity risk that is
off the balance sheet; companies with established credit lines can borrow from banks when they
need it and thus decrease a bank’s liquidity (jeff Madura, 2007). The second is that the banks
that face the most liquidity pressures and have more cash outflow than inflow will have to sell
assets. In this situation most other banks will be facing increased liquidity pressures and there
will be only a few banks in the market to buy these assets. This lack of liquidity in the market
can lead to fire sales of assets. This means the company looking to sell the assets will have to
offer them at a large discount because it needs the cash now due to liquidity pressure. Therefore,
in crisis periods banks holding more liquidity will be able to both grow in new business and take
over business of other banks by buying their assets at low prices. By purchasing assets at fire sale
prices banks that are the purchaser stand to make a great deal of profit (Acharya., Shin.,
&Yorulmazer, 2009). Banks via the Federal Funds market, loans from the Federal Reserve Bank.
Banks liquidity management is the process of generating funds to meet contractual or
relationship between those banks must meet. Effective liquidity management serves five
important functions:
• It demonstrates the market place that the bank is safe and therefore capable of repaying
its borrowing.

• It enables the bank to avoid sale the unprofitable sale of asset. This function permits
banks to avoid sale of asset.

• The lower the size of the default risk premium the bank must pay for funds. Banks with
strong balance sheet will be perceived by the market places as being liquid and safe such
as banks will be able to buy fund at risk premium reflecting their perceived credit
worthiness.

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2.2 Bank liquidity
Liquidity is the ability of a bank to fund increases in asset and meet obligation as they come due,
without incurring unacceptable losses. The fundamental role of banks in the maturity
transformation of short-term deposit in to long loans makes the bank inherently vulnerable to
liquidity risk, both of an institution specific nature and that which affects market as a whole. The
market turmoil that begins in mid-2007 G.C re-emphasis the importance of liquidity to the
functioning of financial market and the banking. Liquidity is a financial institution capacity to
meet its cash and collateral obligation without incurring unacceptable losses. Adequate liquidity
is dependent upon the institutions ability to efficiently meet both expected and unexpected cash
flow and collateral needs without adversely affecting either daily operation or the financial
condition of the institution (Jenkinson,2008).
It is also a risk not having sufficient current assets (cash and quickly saleable securities) to
satisfy current obligations of depositors especially during the time of economic stress. Therefore,
without required liquidity and funding to meet obligations, a bank may fail. (Pandey, 2010)
posits that liquidity is current assets which should be managed efficiently to safeguard the firm
against the risk of illiquid. Lack of liquidity in extreme situations can lead to the firm’s
insolvency. He further state that conflict exists between liquidity and profitability. If the firm
does not invest sufficient fund in current assets, it may become illiquid which is risky. It may
lose profitability if some idle current assets do not earn anything. Hence, insufficient liquidity is
one of the major reasons of bank failure. Liquidity is necessary to enable banks providing funds
on demand and credits needed by customers which are associated with the default risk.

2.3 Risk
Before getting into the subject of risk management we need to first define what risk means and
illustrate the types of risks that are recognized by the scholars of the subject. In reviewing the
subject matter of risk management, the concept of corporate governance and the principles that
lie behind it will be discussed. But first what is “risk”?

“The etymology of the word “Risk” can be traced to the Latin word “Rescum” meaning Risk at
Sea or that which cuts. Risk is associated with uncertainty and reflected by way of charge on the

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fundamental/ basic i.e., in the case of business it is the Capital, which is the cushion that protects
the liability holders of an institution.” (Raghavan, 2003). From this we can imply that “risk” is
intended to show the likelihood of occurrence of a negative situation that we do not wish to see
realized.

Risk is the potential that a chosen action or activity will lead to a loss (undesirable outcome). All
businesses face the threat of risk in their investment as it is dependent on the returns to be had in
the future, which is uncertain as to what could happen, thus rendering itself to risk. Mostly, risk
and uncertainty are confused and used interchangeably which is wrong as the two are different.
This leads us to clearly define the similarity and difference between the two. On the other hand,
risk to a banker means the perceived uncertainty connected with some event related to the
banking business. For example: will borrowers’ default on loans; will new business fall; will the
price of assets in an investment portfolio fall; will the bank suffer losses from a change in long-
term interest rates; is lending profitable? (Allan et al, 1998).

Types of risk:

• Funding risk- needs to replace net outflow due to an anticipated withdrawal of

deposit arises

• Time risk- needs to compensate for non-receipt of expected inflows of funds

arises due to temporary problem in recovery and time involved in managing
liquidity.

• Call risk- crystallization of contingent liabilities and inability to undertake

profitable business opportunities when desirable arises due to swaps and option
conversion of non-fund-based limit to fund based.

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2.4 Banking risks
The major risks in banking business or banking risks are listed below (David. B Bell):

• Liquidity risk

• Interest rate risk

• Market risk

• Default or credit risk and

• Operational risk

2.4.1 Liquidity risk

The liquidity risk of banks arises from funding of long-term assets by short term liabilities,
thereby making the liability subject to rollover or refinancing risk. Funding liquidity risk is
defined as the inability to obtain funds to meet cash flow obligations.

2.4.2 Interest rate risk (IRR)

IRR is the exposure of a bank’s financial condition to adverse movement in interest rates, interest
rate risk refers to potential impact on net interest income or net interest margin or market value
of equity (MVE) caused by unexpected changes in market interest rates, interest rate risk can
take different forms. IRR can be viewed in two ways: its impact is not the earnings of the bank or
its impact on the economic value of the bank’s assets, liabilities and OBS positions.

2.4.3 Market risk

Market risk is the risk of adverse deviation of the market-to-market value of trading portfolio,
due to market movements, during the period required to liquidate the transactions. This results
from adverse movements in the level or volatility of the market prices of interest rate
instruments, equities, commodities and currencies. Market risk also referred to as price risk.
Price risk occurs when assets are sold before their stated maturities. In the financial market, bond
prices and yields are inversely related.

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2.4.4 Default or credit risk
Credit risk is the most simply defined as the potential of a bank borrower or counterparty to fail
to meet its obligations in accordance with agreed terms. For most banks loans are the largest and
most obvious source of credit risk.

2.4.5 Operational risks

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people
and systems or from external events. Strategic risk and reputation risk are not party of
operational risk.

Operational risk may loosely be comprehended as any risk which is not categorized as market or
credit risk. Scope of operational risk is very wide. It includes fraud risk, documentation risk,
competence risk, model risk, cultural risk, external event risk, legal risk and regulatory risk.

2.5 Sources of liquidity risk

Liquidity risk is a risk that a bank will not have sufficient cash to meet its financial commitments
in a timely manner. As business go about the process of measuring and maintain liquidity risk.
They need to be alert for common sources of that risk. These sources include (Joe wijira, 2020).

2.5.1 Lack of cash flow management

Cash flow management gives a bank good visible into potential liquidity challenges and
opportunities cash flow is the bloodline of all business without proper management of cash flow,
a bank will increase its exposure to unnecessary liquidity risk. Moreover, a bank without healthy
and well managed cash flow will face uphill battle to remain profitable, attract potential investors
and to be visible in the long run.

2.5.2 Inability to obtain financing

A history of late debt repayment without loan covenant requirement they translate into additional
challenges when attempting to secure financing. Therefore, it is imperative that bank have a good
relation and regular communication with lenders. The inability to obtain funding at all or to
obtain it at competitive rates and acceptable term increase liquidity risk.

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2.5.3 Unexpected economic disruption
At the start of 2020, the stock market was at its all-time and few people expected the world
would be so hard it by covid-19. The adverse economic impact of this global pandemic was
swift.

2.5.4 Profit crisis

A profit crisis will not only see a decline in its profitability margins and remain in operation. It
will need to start dipping into cash reserves. Failure to stop a continuous cash burn will
eventually deplete cash reserves, with the bank inevitably facing a liquidity crisis.

2.6 Measuring liquidity

One of the key elements of measuring and maintaining liquidity risk is the ability to identify the
warning signs of liquidity crisis. Beyond the identification of these signs, a bank must also be
able to measure risk magnitude so that it can take immediate and appropriate actions to stop a
downward spiral. The measuring methods are analysis of financial ratio, cash flow forecasting
and capital structure management.

2.6.1 Analysis of financial ratio

Good liquidity measure means performing financial ratio analysis, understanding what these
ratios means and taking the necessary best course of action. Financial ratio provides a bank with
current indicators of liquidity risk based on its past performance, allowing it to make the required
financial and operational tweaks to ensure it attains desired future financial and operational
outcome. Analysis of financial ratio includes quick ratio and current ratio.

2.6.1.1 Quick ratio

Measures how well a bank can meet its short-term financial obligation. It’s calculated as:

current asset −inventory

Quick ratio =
current liability

• Quick ratio > 1 means the banks are able to its current and above that it’s in a profit
generating situation.

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 • Quick ratio < 1 means the banks don’t have enough liquid assets to pay its current
liabilities.

• Quick ratio = 1 means the banks have the exact liquid asset to pay its current liabilities.

2.6.1.2 Current ratio

Just like quick ratio current ratio measures the liquidity level of a bank and its ability to use ort-
term assets to repay sort-term obligation. It’s calculated as:

current asset
Current ratio =
current liability

• Current ratio > 1 means the bank have enough capital meet its short-term obligation and
also able to generate profit.

• Current ratio < 1 means the bank does not have enough capital to meet its short-term
obligation.

• Current ratio = 1 means that have enough capital to meet its short-term obligations.

2.6.2 Cash flow forecasting

Importantly, management must have good visibility into potential liquidity difficulties and
opportunities. That said, it is always prudent for bank to maintain and revise their cash flow
forecasts, crisis or no crisis measuring and maintain sort-term liquidity risk is particularly critical
for a bank that as large transaction volume. Longer term cash flow forecasts can be used to
support the strategic objective of the bank and provide financial detail for lenders.

2.6.3 Capital structure management

Debt is usually the cheapest source of financing given that debt as a lower cost of funding than
equity and is also tax-deductible for a bank. To measure liquidity risk due to over-leverage, a
bank should look to see if it as enough liquidity to pay its debt interest and principal.

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2.7 Implementing liquidity risk
Implementing a risk management requires that responsibilities and accountabilities for carrying
out the program be determined and assigned. The organizational structure and incentive system
should be aligned with the goals and objectives of the risk management program. Those
responsible for carrying out the program should have the necessary abilities to implement the
strategy. Managerial competencies in organizational behavior, team leadership and change
management will also be required to implement a risk management strategy. Responsibilities and
accountabilities for implementing a strategy should be clear to all public servants, objectives,
strategies and processes should be well documented and available to stakeholders.

A good risk manager would have the following attributes:

 A proactive attitude toward dealing with the risk and ability to undertake prudent
experimentation.
 An ability to admit and learn from mistakes.
 An ability to recognize one’s own biases and assumption.
 An ability to work in inter-disciplinary and cross-functional teams.
 An ability to recognize the role of science in risk management and recognize and
deal with uncertainty.

2.8 Liquidity risk management process

The liquidity management process first begins with the Board of Directors (BOD) of a firm
establishing a liquidity management policy which will serve as a guideline for all the employees
in the firm. The Basel committee as banking supervisory body, has provided at least three
requirements for a BOD to carry out which are summarized briefly below.

First of all, there is the need for the BOD to understand the liquidity risk profile of
their organization, bearing in mind their internal and external business environment, in order to
be able to determine their tolerance limit. Again, there is the need for the BOD to determine and
approve the appropriate strategies, policies and liquidity risk management practices which they
intend to adopt for their operations. And finally, the BOD also needs to relate the content of this

17
policy to the senior management and then guide them in order to implement it (Basel
Committee, 2008).Policies are written statements which show an institution’s commitment to
pursue certain goals and objectives, by setting standards and courses of action. They are
intended to clearly specify the institution’s mission, values and principles, as well as defining
how daily activities are to be carried out. (Kimathi et al., 2015).

With the above requirements having been settled, the policies now must contain the specific
goals and strategies of managing the liquidity of the firm (both in the short-term and
long-term). As a matter of fact, these policies are meant to clearly define the roles and
responsibilities of the entities involved the liquidity management process, which include asset
and liability management policies as well as the firm’s affiliation with other financial
institutions and regulators at large. Thus, it behooves the BOD to collaborate with the
appropriate expertise like the CEO, risk managers and regulators in order to formulate an
effective policy which takes into account the business environment of the firm. (Kumar, T.,
&Yadav, G. C., 2013).

Furthermore, in the liquidity management process, an effective information system is key, in

supporting the entire process. An effective information system allows institutions to monitor,
report and control its liquidity risk exposure, thereby determining its funding needs. An effective
information system, as explained by the Basel Committee, consists of two players, namely, the
decision makers in charge of the liquidity management of the institution, and decision followers,
who are found at the operational level. Thus, information on liquidity management passes
from the decision makers, through the senior managers down to the subordinates who
implement and also report to the superiors (Diamond and Rajan, 2010).

To add to that, the Basel Committee also prescribes that banks and other related institutions
ought to have an internal control system to help maintain the soundness of their liquidity
management process. Internal control consists of the processes effected by an institution’s board
of trustees, and other relevant personnel, to achieve specific goals such as effectiveness and
efficiency of operations, reliability of financial reporting, and compliance with regulations
(University of Delaware, 2012).This internal control system could be assigned to an
Asset-Liability Committee (ALCO), which is normally a risk management committee in a bank
or lending institution comprising senior managers, and with the goal of evaluating,

18
monitoring and approving risk management practices (Singh and Tandon, 2012), thus
bridging the gap between the top and bottom hierarchy of the institution. The internal control
system is primarily intended to audit or review the liquidity management process of the
institution, evaluating its liquidity position as well as proposing new enhancements to the BOD
when necessary (ICAEW, 1999; Council, F. R, 2014; Basel Committee, 2008).

2.9 Theoretical review

The major objective of Abyssinia bank is to create liquidity while remaining financially stable.
There are a number of ways bank manage their liquidity risk. This section examines three
theories that are demand relevant to research topics. The theories include; shift ability theory,
anticipated theory and liquidity preference theory.

2.9.1 Shift ability theory

The shift ability theory of bank liquidity was propounded by (H.G. moulton, 1960). who asserted
that if the commercial banks maintain a substantial amount of assets that can be shifted on to the
other banks for cash without material loss in case of necessity, then there is no need to rely on
maturities. According to this view, an asset to be perfectly shift able must be immediately
transferable without capital loss when the need for liquidity arises.

2.9.2 Anticipated theory

The anticipated theory was developed by (H.V. prochanow, 1994) on the basis of the practice of
extending term loans. According to this theory regardless of the nature and character of a
borrowers business the bank plans the liquidation of the term loan from the anticipated income of
the borrower. A term loan is for a period exceeding one year and extending to less than five year.
The bank puts restrictions on the financial activities of the borrowers while granting this loan. At
the time of granting loan the bank takes into consideration not only the security but the
anticipated earning of the borrower. Thus, the loan by the bank gets repaid out of the future
income of the borrower.

2.9.3 Liquidity Preference Theory

(Keynes, 1960). postulated that the need to retain cash is influenced by speculative,
precautionary and transactions motives and interest rate is the payment for parting with cash.

19
Rate of interest according to the theory is established by the assessment of projected needs for
money and the amount of money available for satisfying the projected needs. Money required for
speculative, precautionary and transactions needs, amounts to the aggregate demand for liquidity.
Liquidity preference refers to the quantity of cash an individual/ institution would want to retain
in a given point in time.
(Appelt, 2016). argued that the concept of interest rate as proposed by liquidity preference theory
is lacking in consistency. The interest rate as a measure of reluctance to renounce liquid cash
cannot simultaneously constitute the price which brings in to balance the desire to retain cash
with the supply of cash resources.
(Appelt, 2016). further stated that the subject of exchange relations in disregarded in relation to
the concept of interest rate and the demand for money.

2.10 Empirical review

Bordeleau and Graham (2010) offered empirical findings for a panel of Canadian and American
banks from 1997 to 2009 addressing the relationship between liquid asset holdings and
profitability. In brief, the findings revealed that there is a nonlinear relationship between
profitability and liquid assets held by banks; nevertheless, there is a limit beyond which retaining
more liquid assets reduces a bank's profitability, everything else being equal. This result is
conceptually compatible with the premise that financing markets compensate a bank for retaining
liquid assets to some extent, hence lowering its liquidity risk. However, the opportunity cost of
maintaining such very low yielding liquid assets on the balance sheet can eventually offset this
benefit. Simultaneously, the estimation findings show that the relationship between liquid assets
and profitability is influenced by the bank's business plan as well as the risk of financing market
challenges. According to the experts, adopting a more traditional business model, such as deposit
and loan-based banking, allows a bank to maximize revenues while maintaining a lower quantity
of liquid assets.

(Kaitibiet al., 2018). studied the link between efficient management of credit risk and
profitability of banks in Sierra Leone. The researchers studied one of the commercial banks for
the period 2010 – 2014. Ratios and chats were adopted to examine the association that existed

20
between the outcome and response parameters. The study established that efficient credit
management considerably influenced financial returns of commercial banks during the period of
the case study.

(Vodova, 2011). aimed to identify important factors affecting commercial banks liquidity of
Czech Republic. In order to meet its objective, the researchers considered bank specific and
macroeconomic data over the period from 2001 to 2009 and analyzed them with panel data
regression analysis by using EViews 7 software package. The study considered four firm specific
and eight macroeconomic independent variables which affect banks liquidity. The expected
impact of the independent variables on bank liquidity was: capital adequacy, inflation rate and
interest rate on interbank transaction/money market interest rate were positive and for the share
of non-performing loans on total volume of loans, bank profitability, GDP growth, interest rate
on loans, interest rate margin, monetary policy interest rate/repo rate, unemployment rate and
dummy variable of financial crisis for the year 2009 were negative whereas, the expected sign
for bank size was ambiguous (+/-). The dependent variable (i.e., liquidity of commercial banks)
was measured by using four liquidity ratios such as liquid asset to total assets, liquid assets to
total deposits and borrowings, loan to total assets and loan to deposits and short-term financing.

(Vodova, 2011). revealed that bank liquidity was positively related to capital adequacy, interest
rates on loans, share of non-performing loans and interest rate on interbank transaction. In
contrast, financial crisis, higher inflation rate and growth rate of gross domestic product have
negative impact on bank liquidity. The relation between the size of the bank and its liquidity was
ambiguous as it was expected. The study also found that unemployment, interest margin, bank
profitability and monetary policy interest rate/repo rate have no statistically significant effect on
the liquidity of Czech commercial banks, (Tirualem,2009), stress on the impact of liquidity on
performance of banks, the existence of standardized liquidity risk management
strategy(practice) and the impact of the directives of NBE on the performance of
commercial banks in Ethiopia. To conduct the study, descriptive method was employed.
Purposive sampling was used in the selection of each bank and the respondents from the
respective bank. Thus, a total of 30 respondents participated to the sources of primary data for
the study. Data were collected through questionnaire, interview and annual reports of each

21
commercial bank. The data collected from primary and secondary sources were organized using
tables and graphs ad interpretation was made on the data using quantitative and qualitative
methods. The findings of the study revealed that there is no uniform (standardized) liquidity
risk management policy and procedure in the banking industry which is for all
commercial banks in Ethiopia. Finally, recommendations were forwarded based on the
major findings so as to improve the liquidity risk management practice of commercial
banks in Ethiopia.
(Alemayehu Fekadu, 2016). Research is to identify the factors significant to explain
Ethiopian commercial Banks liquidity. This study has categorized the independent factors
into bank specific factors and macroeconomic factors. The bank specific factors include Bank
Size, Capital Adequacy, Profitability, Non-Performing Loans, and Loan Growth while the
macroeconomic factors include Gross Domestic Product, General Inflation and National bank
Bill. The panel data was used for the sample of eight commercial banks in Ethiopia from 2002
to 2013 year and estimated using Fixed Effect Model (FEM), data was present by using
descriptive statistics and the balanced correlation and regression analysis for liquidity ratios
was conducted. The findings of the study show that capital strength and profitability had
statistically significant and positive relationship with banks’ liquidity. On the other hand, loan
growth and national bank bill had a negative and statistically significant relationship with
banks’ liquidity. However, the relationship for inflation, non-performing loans, bank size and
gross domestic product were found to be statistically insignificant. The study suggests banks
must have increase their outreach to tens of millions of people by openings up more and more
branches every year through country, and have significantly improve their banking service by
introducing new product and services like Agent banking, Mobile banking and Internet Banking
through the application of modern technology.
(Andebet Mulualem Zewdu, 2016). This study aimed at comparing the performance of Private
commercial banks in Ethiopia during pre and post Bill Periods. i.e 2008-2011 and 2012-2015
years. The study used quantitative research approach and secondary financial ratio analysis for
six private commercial banks. Profitability performance, liquidity performance and asset
quality performance of the banks were assessed to compare pre and post bill periods
performance of the private banks. Purposive sampling was used to select samples from the
total population. The study used trend analysis using graphs for each of the variables in the

22
study to observe the trend on them throughout the observation period. A paired t- test is
employed to test the hypothesis that the means of the two periods are same on the eight
variables. As a result of hypothesis test it was found there is statistically significant
difference between the two periods in respect to profitability measures of Return of
Equity (ROE), Cost to Income(C/I) ratio, and Net interest margin (NIM). In addition
statistically significant difference between the two periods is observed in the Liquidity measure
of Liquid asset to deposit (LAD) ratio and asset quality measure of loan reserve to total loan
(LRTL) ratio. The study reveal statistically insignificant difference between the two periods
in respect to Return on Asset(ROA) and liquidity measure of Loan to Deposit(LD)
ratio and Loan to total asset(LTA) ratios. Finally, the study had recommended on further
research in bank performance and regulatory requirements in private banking business.

(Mekebub, 2016). the main objective of this study was to identify the determinants of liquidity
of private commercial banks in Ethiopia. In order to achieve the research objectives, data
was collected from a sample of six private commercial banks in Ethiopia over the period from
2000 to 2015. Bank specific and macroeconomic variables were analyzed by using the balanced
panel fixed effect regression model. Bank’s liquidity is measured in three ratios: liquid asset to
deposit, liquid asset to total asset and loan to deposit ratios. The findings of the study revealed
that, bank size and loan growth has negative and statistically significant impact on liquidity;
while non- performing loans, profitability and inflation have positive and statistically
significant impact on liquidity of Ethiopian private commercial banks. However, capital
adequacy, interest rate margin, real GDP growth rate , interest rate on loans and short
term interest rate have no statistically significant effect on the liquidly of Ethiopian private
commercial banks.

(Shukla J., and muchem E, 2017). studied the nexus between management of liquidity and
financial performance of commercial banks in Rwanda. Fourteen commercial banks were
randomly selected for the purpose of the study. Multiple regression technique was adopted to
establish the nexus between management of liquidity in the financial returns of commercial bank
of in Rwanda. The study concluded that holding more liquid assets as compared to total assets
would lead to lower returns to commercial bank in Rwanda and the effect is significant at 5%.

23
2.11 Cost budget and time schedule
2.11.1 Cost budget schedule
The costing budget of this study starts from stationary material up to the presentation to the
audience; it is summarized below.

Measurement unit Quantity Price per unit Total price in

Descriptions birr
Paper sheet Pack 1 140 140
Pen '' 1 80 80
Printing Page 250 2 500
For questioner writing '' 10 6 60
Photocopy of materials '' 200 1 200
Transport cost - 825
Binding the paper Number 6 7 42
Miscellanies expense - 290
Contingency - 200
Total costs 2,339

2.11.2 Time plan

The time period of this study starts from problem identification, research proposal development
up to the final presentation to the audience. It is summarized in the table below.

Activity Jul Jul Jul Jul Aug Aug Sep Sep

2 9 16 30 13 27
Reviewing literature * * * * * *
Proposal writing *
Instrument *
construction
Data collection *
Data organization *

24
Data analysis *
Report writing *

Paper report first *

Paper report final *

25
 Reference

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Bank Liquidity. Retrieved March 2010, from Social Science Research Network:
http://ssrn.com/abstract=1108103
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regulator, ACCA Conference – CFOs: The Opportunities and Challenges Ahead [online].
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banks of Ethiopia unpublished MSC thesis. Addis Ababa University.
 Allan, et al (1998). The impact of credit risk management on financial performance of
 Allan, J., Booth, P., Verrall, R., & Walsh, D. (1998). The Management of Risks in
Banking. British Actuarial Journal, Vol. 4, No.4, 707-802.
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pre and post NBE bill periods. Unpublished MSC thesis. Addis Ababa University.
 Appelt, K. (2016). Keynes Theory of Interest Rate: A Critical Approach. Club of
Economics in Miskolc, 12(1) pp 3 –8 .
 commercial banks in Nepal, International Journal of Arts and Commerce.
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 David. B Bell, (2010) Risk manaementvol 2 p(117-125)
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Creation and Financial Fragility: A Theory of Banking
 Drehman, M and Nikolau, K (2009). Funding liquidity risk: definitions and
measurement‟, ECB working paper, No. 1024.Dryden Press, Orland
 Hawawini, G.; Vialler, C.(2007). Finance for executives managing for value creation.
3rd ed. South – Western Pub Ltd. 672 p.
 Http://www.udel.edu/Treasurer/intcntrldef.html [Accessed 22 Jul.2015].
 Ismail, R. (2010). Assessment of Liquidity Risk Management in Islamic Banking
Industry. International Journal of Islamic and Middle Eastern Finance (Emerald
series Journal),Vol. 3, No. 2, 2010, p147-15
 Jeff madura (2003) introduction to bussinessvol 3, p48-63

26
 Jenkinson, N. (2008). Strengthening regimes for controlling liquidity risk Euro Money
Conference on Liquidity and Funding Risk Management, Bank of England, London, p. 9.
 Kaitibiet al. (2018). Impact of efficient credit management of profitability in commercial
banks in Sierra Leone. Journal of business and management, 6, 139-150.
 Keynes, J. M. (1960). The General Theory of Employment, Interest and Money. New
York: London Macmillan & Co.
 Kimathi A., Mugo, R., Njeje, D. and Otieno, K.(2015). Factors Affecting Liquidity Risk
Management Practices in Microfinance Institutions in Kenya.Journal of Economics and
Sustainable Development.Vol. 6, No. 4, pp. 78-90.
 Kiyotaki, N and Moore, J. (2008); liquidity, business cycles and monetary policy.
Princeton University, unpublished
 Kumar, T., &Yadav, G. C., (2013). Liquidity risk management in bank: a conceptual
framework. AIMA Journal of Management & Research. 7(2/4): 0974 –497
 Leech N, onwuebuizie A, (2008) a topoloy of mixed researc designs quality and quantity.
 Lucchetta, M.,(2007). What do data say about monetary policy, bank liquidity and bank
risk taking? Economic Notes by Banca Monte deiPaschi di Siena SpA, Vol. 36, No.2,
189-203.
 Madura, J. (2007). Financial Markets and Institutions.Mason: South-Western/Cengage
Learning.
 Majid, A. (2003). Determinants of liquidity risk in Islamic bank
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 Pandey, I.M. (2010). Financial Management, Tenth Edition, Vikas Publishing House
PVT LTD,
 Raghavan, R. (2003). Risk Management in Banks. Management , 841-851.
 Santomero Anthony M. (1997), Commercial Bank Risk Management: An Analysis of the
Process, Working Paper.
 Shukla. J., and mucheru, E.( 2017). Effect of liquidity management of financial
performance of commercial banks; Selected banks in Rwanda. European journal of
business and sciences, 6(7).
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 Singh, D. A. B., & Tandon, M. P. (2012). Asset-Liability management in Indian banking
industry. Asia Pacific Journal of marketing & management Review. Vol. 1, No. 3.
 Tirualem,(2009). Assessment of liquidity risk management practice of commercial banks
in Ethiopia: empirical study on commercial banks in Ethiopia’, unpublished MSC thesis,
Addis Ababa university.
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Van Ness, D. R. (2009). Corporate Performance 3rd Ed.: Strategies, Actions, Results.
East Greenbush: Hallenbeck Publishing Co.
 Vodova , (2011) liquidity of Czech commercial banks and its determinants, international
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 Web Finance, Inc. (2013). Retrieved from Business dictionary:
http://www.businessdictionary.com

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 Appendix
St. MARY’S UNIVERSITY

Department of Accounting and Finance

The aim of this questionnaire is to collect information for research to be conducted on the
challenge and prospects of liquidity risk management in the case of Bank of Abyssinia, at Head
office by Samrawit Faris, Selam Gebrewold, and Helen Bereda, who are undergraduate student
of Accounting and Finance at St. Mary’s University. Your cooperation in providing genuine
response to the following questions is highly important for the success of this study. It is
prepared only for academic purposes and your response will be kept confidentially. Thank you in
advance for your cooperation.

Instructions:
 Do not write your name

 Please use a tick mark (✔) to choose your best response to the close-ended questions

 Write your answer on the space provided for open-ended questions

 Attempt all questions

Background Information
1. Sex
Male Female
2. Educational level
College diploma Master Degree
BA/BSC degree Other
3. Over all experience in the bank
Below 2years 4-6 years
2-4 years Above 6 years
4. Position in the bank
Junior officer Senior officer

29
 Managerial Non-clerical
General questions
1. Does the bank have clear liquidity risk management policy and procedure?
Yes No
2. If yes, does it pass through periodic revisions?
Yes No
3. If yes, how often do you perform the revision?
6 months
1 year
2 years
Other
4. Does the bank apply stress tests on liquidity?
Yes No
5. Does your bank has predefined warning signs for occurrence liquidity crises?
Yes No
6. If yes, what types of scenarios are in use as signals?

7. Does your bank meet the requirements of NBE regarding liquidity?

As expected,
Over liquid
Deficient
Other

30
Information about liquidity risk management policy, procedure
framework and liquidity risk management structure
(N.B 1 - Strongly Disagree, 2 - Disagree, 3 - Neutral, 4 - Agree, 5 - Strongly Agree)

1 2 3 4 5
1. The risk & compliance management sub-
committee of the board of directors oversees the
implementation of the risk management policy.

2. The company board of directors properly

understands the nature of the bank liquidity &
assigning responsibility to a different level for
managing liquidity risk.

3. The senior management of the company

evaluating the design & implementation of an
appropriate liquidity risk management system
and standards liquidity risk reporting and
monitoring process

4. The senior management of the bank

established policies to clearly set the purpose,
objectives and goals of liquidity management.

31
Information about major challenges faced in implementation the liquidity
risk management of the bank
(N.B 1 - Strongly Disagree, 2 - Disagree, 3 - Neutral, 4 - Agree, 5 - Strongly Agree)

1 2 3 4 5
1. There are challenges that hinder effective
implementation of liquidity risk management in the
bank.

2. The bank annually adopts a new way to offset

the increasing cost of operations in order to
prevent liquidity risk.

3. The bank’s liquidity management system

involves consistency and clear communication,
even during difficult scenarios.

4. The bank builds a liquidity dashboard to

comply with the need to monitor their liquidity
position on a real-time basis.

Information about liquidity position as per liquidity risk indicator.

(N.B 1 - Strongly Disagree, 2 - Disagree, 3 - Neutral, 4 - Agree, 5 - Strongly Agree)

32
 1 2 3 4 5
1. The bank has clear procedure for identifying,
monitoring, measuring and controlling liquidity
risk.

2. The bank has inflow against the outflow and

liquidity value of its asset to identify the potential
for future net funding shortfalls.

3. The bank's liquidity risk measurement options

are adequate.
4. The bank sets a limit to control the liquidity risk
exposure and vulnerabilities.

INTERVIEW

33
This interview session with the liquidity risk management body is aimed to collect
information about the liquidity risk management practices in the context of Bank of
Abyssinia. We would like to thank you in advance for your cooperation.

1. What are the main causes of liquidity risk in the bank, and how is it identified?
2. What tools and standards does the bank employ to assess its liquidity level?
3. What are the bank's strength and weakness when it comes to managing liquidity risk?
4. Is there a plan in place for when there is uncertainty or an unexpected crisis?

34