The Impact of Macroeconomic Factors on Financial Performance of Commercial Banks in Ethiopia

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Addis Ababa University


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.


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


Commercial Banks, Financial performance, Macroeconomic factors