An Analysis of the Determinants of Banks Performance in Case of Private Commercial Banks in Ethiopia

Abstract

The purpose of this study is to investigate determinants of private commercial banks profitability in Ethiopia by using panel data of three private commercial banks from year 2007 to 2016. The study used quantitative research approach and secondary financial data are analyzed by using multiple linear regressions models for the two bank profitability measures; Return on Asset (ROA) and Return on Equity (ROE). Fixed effect regression model was applied to investigate the impact of capital adequacy, deposit mobilization, interest rate, liquidly, bank size, and real GDP growth rate on major bank profitability measures i.e., (ROA), (ROE), separately. The empirical results shows that bank specific factors; capital adequacy, interest rate, bank size and macro-economic factors; level of GDP, and regulation have a strong influence on the profitability of private commercial banks in Ethiopia. Thus, management bodies of private commercial bank should strive to strengthen the identified significant factors and government bodies should also see the adverse effect of tight polices imposed on the existing private banks as well as for the new entrants.

Keywords: Profitability, ROA, ROE, Commercial Banks

DOI: 10.7176/EJBM/11-31-06

Publication date: November 30^th 2019