Exogenous Determinants of Commercial Banks Profitability: Empirical Evidence from the Commercial Banks of Ethiopia
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Date
2015-10
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Addis Ababa University
Abstract
The main objective of this study is to examine the effect of external determinants on Ethiopian
commercial banks from the period 1985 -2013. External determinants were seen by classifying
them in to industry-specific and macroeconomic determinants. The study used OLS estimation
method to measure the effects of external determinants on profitability. Profitability was
measured by three indicators: Average Return on Asset, Average Return on Equity and Net
Interest Margin in order to analyze the behavior of each across years. The estimation results
show that the external variables in the model altogether explain ROA significantly. However, the
explanatory variables fail to explain the rest indicators; ROE and NIM. Being seen
independently, the coefficients of all explanatory variables were not significant at 10%. The NBE
and commercial banks of Ethiopia policy makers and managers should give due concern by
forecasting those explanatory variables in order to maximize the opportunity for better profit
and minimize the possible risks.
Key words: profitability, commercial banks
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Keywords
Profitability; commercial banks