Determinants of Commercial Banks Profitability: An Empirical Study on Ethiopian Commercial Banks
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Date
2011-06
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Addis Ababa University
Abstract
The aim of this study is to examine the impact of bank-specific, industry-
specific and macroeconomic determinants of Ethiopian commercial
banks profitability. The study applied the balanced panel data of seven
Ethiopian commercial banks that covers the period 2001- 2010. The paper
used Ordinary Least Square (OLS) technique to investigate the impact of
capital, size, loan, deposits, noninterest income, noninterest expense
credit risk, market concentration, economic growth, inflation and saving
interest rate on major profitability indicator i.e., return on asset (ROA). The
estimation results show that all bank-specific determinants, with the
exception of saving deposit, significantly affect commercial banks
profitability in Ethiopia. Market concentration is also a significant
determining factor of profitability. Finally, with regard to macroeconomic
variables, only economic growth exhibits a significant relationship with
banks’ profitability. The results of the study are of value to both
academics and policy makers
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Keywords
Ethiopian Commercial Banks