Financial Performance Analysis of Privately Owned Commercial Banks in Ethiopia

Abstract

Ethiopian banking history, in its modern sense began towards the end of the reign of Emperor Menilek II. Currently, there are eighteen banks in Ethiopia; two of them owned by government the remaining are private. Financial performance analysis intends to enable to make decision and to regulate profit distribution. Various studies conducted on bank performance have focused on individual bank; the measurements they were used, time period coverage and some other include the macroeconomic variables. However, this study only covers banks which privately owned and which had operated for eleven years from 2005-2015.  The objectives of the study were to investigate the performance of privately owned commercial banks in Ethiopia for the period 2005- 2015. This paper uses a descriptive method for analysis of financial information by using ratio analysis and Pearson correlation was used to show the relationship between the performance measurement. The researcher used four types of performance measurement; profitability performance, liquidity performance, debt management and credit performance. Based on the findings the overall profitability performance of privately owned banks was in good condition. Banks liquidity to meet its financial obligation in a timely manner was in a good condition for the measurement of LADST and NLTA but net loan locked in to non-liquid asset of the banks was high. Therefore, the bank should improve this to meet their financial obligation.  All privately owned commercial banks in Ethiopia use huge amounts of debt to finance their asset. This has positive implications of the banks because the main source of finance and liabilities of the banks are deposit from customers. The Pearson correlation result indicates banks LADST negatively correlated with ROA and ROE. Generally, the financial performance of privately owned commercial banks seems better from period to period. There was variation in their performance.

Keywords: Financial Performance; private banks in Ethiopia