Browsing by Author "Abel Betru"

Now showing 1 - 1 of 1
  • No Thumbnail Available
    Item
    Impact of Diversification on Bank Performance: Empirical Evidence from Ethiopian Private Commercial Banks
    (A.A.U, 2024-06-02) Abel Betru; Habtamu Berhanu (PhD)
    The objective of this study was to examine the impact of income and loan portfolio diversification on bank performance among private commercial banks in Ethiopia. For attaining this research objective, the study followed a quantitative research approach and an explanatory research design. Thus, data was collected for both independent and dependent variables: measures of bank income and loan portfolio diversification, and measures of bank performance from 16 private commercial banks for the study period 2017 to 2022. The study used econometric models to examine the impact of income and loan portfolio diversification on banks’ performance. The study found that income diversification into interest and non-interest income sources positively impacts profitability and reduces bank risk. The overall impact of income diversification on bank performance was found to be positive and statistically significant. The study also found that noninterest income diversification into fees and commissions income and other non-interest income sources has a negative impact on profitability and increases bank risk. The overall impact of noninterest income diversification on bank performance was found to be negative and statistically significant. With respect to loan portfolio diversification, the study found that naïve loan portfolio diversification was found to have a negative impact on profitability and bank risk. Similarly, loan portfolio diversification against the loan market benchmark portfolio was also found to have a negative impact on both profitability and bank risk. The overall impact of naïve loan portfolio diversification and loan portfolio diversification against the market benchmark portfolio on bank performance was found to be indeterminate without deciding what is considered an efficient tradeoff between profitability and credit risk.