The Effect of Asset and Liability Management on the Financial Performance of Private Banks in Ethiopia
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Date
2022-04-06
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A.A.U
Abstract
The aim of study was to examine the effect of asset liability management on performance of Ethiopian private commercial banks from 2014 to 2020. In this research, the banks performance were measured by ROA and ROE while the ALM components that could affect performance were credit risk, liquidity risk, operational risk, market risk the composition of the banks’ asset they hold. For that purpose, panel data was collected from NBE covering period of 2014 to 2020. These panel data was analyzed by using Stata 14.2 econometric software. Quantitative research approach and explanatory research design was used to explain causal relation between variables. Furthermore, the study used multiple linear regression model with Generalized Least square estimation method. The findings of the research implied that, CA composition was dropped due to it causes multicollinearity problem. Fixed asset composition and credit quality have no significant effect on performance. The other variables such as LATD and RSAL had negative and significant effect, while TLATD has positive effect on ROE. Foreign exchange rate has positive and significant effect on both ROA and ROE while OEOI has negative effect. LATD and RSAL have positive and significant effect, but TLATD and RSAL were not significant determinants of ROA. The study concluded that fixed asset composition, loan to deposit ratio and non-performing loan were not significant determinants of Ethiopian private banks performance. On the other hand, foreign exchange rate, liquid asset to deposit ratio operational efficiency and interest rate risk were found significant determinants of Ethiopian private banks performance.