The Effect of Financial Risk on the Financial Performance of Ethiopian Commercial Banks
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Date
2019-02
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Addis Ababa University
Abstract
This study aimed to identify effects of financial risk on the performance of Ethiopian Commercial banks over the period from 2000 to 2017. The study used secondary data that bank specific data were obtained from the audited financial statements of the sampled Ethiopian commercial banks head office. Additionally, and Macroeconomic data used from MoFED. Besides to this, balanced panel data were employed in the study. Thus, by employing purposive sampling method only seven commercial banks out of seventeen commercial banks operating in Ethiopia were included in this study. Besides to this, the study used ROA as a dependent variable and liquidity risk, solvency risk, credit risk, interest rate risk, inflation rate risk and foreign exchange rate risk as independent variables. At the end, the empirical results of random effects panel data model regression revealed that interest rate risk, inflation rate risk and foreign exchange rate risk have statistically significant impact and positive influence on ROA, while credit risk has statistically significant and negative influence on the financial performance (ROA) of the Ethiopian commercial banks. Therefore, the banks should adopt credit risk management practices and National bank of Ethiopia should implement sound policies and measures of interest rates in the economy and proper fiscal and monetary policies should be enforced to control the level of inflation in an economy.
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 Degree of Master Science in Accounting and Finance
Keywords
commercial banks, Financial risk, Foreign exchange risk and credit risk, Interest rate risk