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Determinants of Excess Liquidity in Tanzanian

Author

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  • Jehovaness Aikaeli

    () (University of Dar es Salaam, Tanzania)

Abstract

Among the current concerns in Tanzania is that banks are awash with liquidity notwithstanding the private sector high demand for credit. Excess liquidity constrains banks’ productivity/efficiency; and on the other hand, strangles the share of credit allocated to the private sector, thereafter upsetting economic growth. To determine the causes of excess liquidity, autoregressive distributed lag model is employed. The findings suggest that high cost of funds, credit risks, volatility of deposit holders’ cash preference, inter alia, perpetuated accumulation of excess liquidity in commercial banks. Important policy implications on price stability, risks minimization, proper supervision and optimal liquidity management are highlighted.

Suggested Citation

  • Jehovaness Aikaeli, 2011. "Determinants of Excess Liquidity in Tanzanian," The African Finance Journal, Africagrowth Institute, vol. 13(1), pages 47-63.
    • Handle: RePEc:afj:journl:v:13:y:2011:i:1:p:47-63
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    File URL: http://www.journals.co.za/ej/ejour_finj.html
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    Cited by:

    1. Simplice A. Asongu & Jacinta C. Nwachukwu, 2016. "Mobile Phone Penetration, Mobile Banking and Inclusive Development in Africa," The African Finance Journal, Africagrowth Institute, vol. 18(1), pages 34-52.
    2. Nguyen, Vu Hong Thai & Boateng, Agyenim, 2015. "An analysis of involuntary excess reserves, monetary policy and risk-taking behaviour of Chinese Banks," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 63-72.

    More about this item

    Keywords

    Excess liquidity; Commercial banks; Reserves; Deposits;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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