Determinants of Commercial Banks Profitability in Ethiopia
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Date
2015-05
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Addis Ababa University
Abstract
The study examined the effect of internal (bank-specific) and external (industry-specific and macroeconomic) determinants of Ethiopian commercial banks profitability by using panel data of eight commercial banks from the period 2000 – 2013. The study used quantitative research approach and the secondary data collected from the banks’ financial statements is analyzed by using Ordinary Least Square (OLS) estimation method of multiple linear regressions models to measure the effect of internal and external determinants on profitability of banks. Return on Asset (ROA) and Return on Equity (ROE) are used as banks’ profitability measurement variables of the study.
The output of the study has shown that bank size significantly and positively affects the bank’s profitability. However, credit risk, deposit liability and operational efficiency affect the bank’s profitability significantly and negatively as expected. Moreover, the macroeconomic determinant of GDP has positive and significant effect on return on assets while it is positive but insignificant in Return on Equity.
Regarding the ownership of banks, the output of the study has revealed that operational efficiency and bank size are significant in explaining profitability of both State and privately owned banks. On the other hand, credit risk is found to affect the profitability of private banks significantly
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Keywords
Profitability, Commercial banks