Effect of National Bank of Ethiopia’s Prudential Regulation on the Performance of Private Commercial Banks in Ethiopia
No Thumbnail Available
Date
2020-01
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U
Abstract
The main objective of this study is to examine the effect of National bank of Ethiopia’s prudential regulations on private commercial banks financial performance through the significant prudential regulatory variables explaining the NBE directives, using bank-specific and macroeconomic variables as control variables. Balanced fixed effect panel regression was used for the data of ten private commercial banks in the sample covered the period from 2009 to 2018. Four regulatory factors affecting private commercial banks financial performance in terms of return on equity were selected and analyzed. The results of panel data regression analysis showed that Capital Adequacy Ratio and Bank Size have negative and statistically significant effect on banks profitability, while lending interest rate and liquidity requirement ratio have positive and significant effect on profitability. The study disclosed that capital adequacy ratio is significant bank prudential regulation variable that affects the financial performance of private commercial banks. This implies that private commercial banks in Ethiopia used equity in order to meet the regulatory requirement level of capital. So the study recommended to the banks to find other cheaper source of finance other than equity to meet the requirement, private commercial banks should enhance their deposit mobilization endeavors in a better way than its normal practice, Ethiopian private commercial banks’ officers and shareholders should effectively manage their total asset, and private commercial banks should concentrate on their profitability by charging lower interest rate and providing handsome return to depositors
Description
A thesis Submitted to the Department of Accounting and Finance, College of Business and Economics, Addis Ababa University, in Partial Fulfillment of the Requirements for Degree of Masters of Science in Accounting and finance
Keywords
Bank, prudential regulation, Financial performance