Determinants of Profitability in Ethiopian Private Commercial Banks: Evidence from Selected Banks of Ethiopia

Abstract

In this study the main objective of the research is to analyze the determinants of profitability in case of selected private commercial banks of Ethiopia. Currently commercial banks in Ethiopia are rapidly growing and the purpose of the research is to investigate the common determinants of profitability in selected commercial banks.

Panel data were used to examine the bank-specific, industry-specific and macro-economic factors affecting bank profitability for six selected private commercial banks from the period 2001 to 2011. Fixed effect regression model was applied to investigate the impact of equity capital, saving deposit, fixed deposit, noninterest income, liquidity risk, nonperforming loan, bank size, market concentration, GDP growth and inflation on banks profitability measured by ROA. The regression result suggests that, equity capital, bank size and gross domestic product have positive coefficient and statically significant impact on banks’ profitability. And also as expected, there is negative and significant relationship between fixed deposit, liquidity risk and nonperforming loan and private commercial banks profitability. However saving deposit, noninterest income and market concentration has a positive relationship, but statically insignificant. And finally as expected inflation has shown a negative coefficient but, statically insignificant

Keywords: Profitability, Determinants, Private commercial banks