Exogenous Determinants of Commercial Banks Profitability: 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 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



Profitability; commercial banks