The Impact of Macroeconomic Factors on Financial Performance of Commercial Banks in Ethiopia
No Thumbnail Available
Date
2019-02
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
The study investigated the impact of Macroeconomic factors on financial performance of
commercial banks in Ethiopia. Basically, banks financial performance can be determined by
both internal and external factors but in this study the Macroeconomic effect on financial
performance have been studied. The study used secondary panel data for the year 2008-2017
from audited annual financial statements of banks included in the sample, annual report of
National Bank of Ethiopia and the World Bank data websites, to assess the effect of
Macroeconomic factors on banks performance. Purposive sampling was used to select seven
commercial banks out of seventeen commercial banks on the basis of having full set of data on
the range of year from 2008-2017, proportion of capital and proportion of number of branches
opened. Besides sampling method, the data analysis tools that have been used in this research
work were descriptive statistics as well as econometric model. Fixed effect Model have been
applied for both model with dependent variables ROA and ROE and Six Macroeconomic
Variables as independent variables such as percentage change of Money supply (MS), Inflation
Rate(IR), Foreign Exchange Rate (FER), Real Gross Domestic Product (RGDP), Real Lending
Interest Rate(RLIR) and Unemployment rate(UR).the major finding of the study shows that
percentage change of Money supply and foreign Exchange rate have significant effect on both
ROA and ROE with positive and negative relationship respectively. Inflation rate has positive
significant relationship with ROA but it has Negative insignificant relationship with ROE.
Unemployment rate has negative significant relationship with ROA and Negative insignificant
relationship with ROE. Real Lending Interest rate has positive insignificant effect on ROA and
ROE and Finally Real Gross Domestic Product has significant negative relationship with ROE
but it has negative insignificant effect on ROA.
Description
A thesis submitted to the department of accounting and finance of Addis Ababa University in partial fulfillment of the requirements for the degree of Masters of Science in Accounting and Finance
Keywords
Commercial Banks, Financial performance, Macroeconomic factors