Determinants of Commercial Banks Profitability: -An Empirical evidence from the Commercial Banks of Ethiopia

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Addis Ababa University


The main objective of this study is to examine the effect of bank-specific, industry-specific and macroeconomic determinants of Ethiopian commercial banking industry profitability from the period 2000 – 2011. By usig OLS etimation method to measure the effect of internal and external determinants on profitability interms of average return on asset and net interest margin. The estimation results show that profitability persists in some extent, implies that the indicator of the existance of relatively fairly competitive market in Ethiopian commercial banking environment, especially competition between private banks. Regarging the explanatory variables, all bank-specific determinants, with the exception of bank size, expense management and credit risk, affect bank profitability significantly and positively in the anticipated way. However, bank size, expense management and credit risk affect the commercial banks profitability significantly and negatively. In addition to this, no evidence is found in support of the presence of market concentration. Finally, from macro economic determinants GDP has positive and significant effect on both asset return and interest margin of the bank. But interest rate policy has significant and positive effect only on interest margin. The commercial banks of Ethiopia policy makers and managers should give high concern to the credit risk management, expense management and large bank size management inorder to reduce the hindrance of the profitability of the banks.



Commercial Banks Profitability