Measuring the Relationship between Profitability and Asset Liability Management in Ethiopian Commercial Banks: A Ratio Approach
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Date
2012-02
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A.A.U
Abstract
This study is designed to analyze the relationship between the balance sheet components
and profitabilit1j of Ethiopian Commercial Banks for the period 2001 to 2010. In order to
carry out the study, balanced panel data comprising a sample of 80 observations from the
balance sheets and the profit and loss accounts of 8 Commercial Banks were gathered.
Two of them are public while the rest are private Banks. The relationship between
profitabilit1j and Asset Liabilit1j Management (ALM) was tested using the Statistical
Cost Accounting (SCA) model. Two measures of profitabilit1j were used to signify the
relationship between profitabilit1j and ALM. Those are Total Income and Net Income.
The results of the analysis showed that public Banks balance sheet components of Loans
and Advances, Saving Deposits, and external factors -GOP growth rate and Market
concentration significantly affect their total income, while net income of public Banks is
significantly affected by Balance Sheet Unrelated Items, Loans and Advances, Saving
Deposits, Inflation ,GDP growth rate and Market concentration. Private Banks' total
income is found to be significantly affected by Balance Sheet Unrelated Items, Placings
with other banks, Sum of Investments, Fixed Deposits and Other Liabilities, and their net
income is impacted by Off-Balance Sheet Items, Saving Deposits, Fixed (Time Deposits,
Other Liabilities and external factors. Consequently, Bank managers are advised to pay
attention to these items in their profit planning in order to enhance their performance.
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Keywords
ALM; SCA; Commercial Banks