Determinants of Bank Profitability in Ethiopia:

Abstract

The study was attempted to investigate determinantsof bank profitability in Ethiopian private banks using secondary data. The datawere obtained from audited financial statements of six sampled private commercialbanks for the period of 2004 to 2011 and National bank of Ethiopia. Novel featuresof the study were the analysis of variables which are missed by other researcher;labor productivity, overhead, liquidity, and market share. The study used returnon assets (ROA) as dependent profitability variable. Moreover, the study used bothbank specific and external variables as explanatory variables. Both descriptivestatistics and econometrics model specifically fixed effects estimation were usedto analyze the relationships of dependent  variable with explanatory variables. The major findings of the study showsthat bank specific determinants were very important in explaining profitabilitythan external variables. The Asset size, capitalization, labor productivity, liquidityand non interest income were positively and significantly related to bank’s profitability,while credit risk and overhead efficiency have a negative impact on profitabilityof bank specific drivers.  Keywords: Determinants, External Factors, Internal Factors, Profitability,Private Banks, and Ethiopia