Determinants of Financial Distress Conditions of Commercial Banks in Ethiopia: A Case study of Selected Private Commercial Banks

Abstract

The study first assessed the financial health conditions of the selected private commercial banks using Altman Z-score model (ZETA Analysis) and estimated determinants of financial distress using panel data starting from 2002/03 to 2011/12 and six private commercial banks in Ethiopia using panel data regression, the researcher analyzed bank specific factors affecting firm’s financial distress. In the study ZETA score of the banks is used as the proxy for financial distress. Finding of the study indicate that capital to loan ratio, net interest income to total revenue ratio have statistically significant positive influence on the financial health of banks where as the nonperforming loan ratio has statically significant negative influence on the financial health of the banks.

Keywords: Financial Distress, Panel Data, ZETA Analysis