The Effect of Asset & Liability Management on Commercial Banks Profitability
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Date
2018-01
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Addis Ababa University
Abstract
The purpose of this study is to assess the effect of asset liability management along with external macro-economic factors on commercial banks profitability with an emphasis on the core business operations profitability of commercial banks in the country over a period of fourteen years from 2002-2015. The study was necessitated by the lack of documented literature on the effect of asset liability management on the financial performance of banks with an emphasis to core business operations profitability. To conduct the study quantitative research method was employed and explanatory research design was used in trying to establish the causal effect relationship between profitability and asset liability management and macro-economic variables (which were; loans & advances, deposit & placement with other banks, sum of investments, saving deposits, demand deposits, fixed deposits, market share, real GDP growth rate and Inflation rate).The profitability measure was net interest income. Seven commercial banks were selected as a sample from seventeen commercial banks operating in the country. Secondary data was utilized through structured record review of the financial statements of the bank which was obtained from the NBE and each of the banks. The study utilized panel data analysis methodology in drawing conclusions about the effect of the explanatory variables on the dependent variable. The research revealed that loans & advances and sum of investments had a statistically significant positive effect on net interest income, while saving deposit had a statistically significant negative effect on net interest income. Whereas deposit & placement with other banks from the asset part and demand deposit and fixed deposit from the liability part, don‘t have statistically significant effect on profitability as measured by net interest income. On the other hand market share do not have statistically significant effect on profitability while real GDP growth rate and Inflation has got a statistically significant effect on profitability as measured by net interest income.
Description
A thesis submitted to department of accounting and finance
College of business and economics for partial fulfillment of
The requirements for the award of MSC degree in Accounting
and finance
Keywords
Commercial banks, Profitability