Analysis of Financial Performance of Selected Commercial Banks in Ethiopia
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Date
2022-02
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A.A.U
Abstract
The purpose of this study was to analyze the financial performance of commercial banks in Ethiopia using the CAMEL method. The research was carried out on ten commercial banks, using data from their annual reports from 2011 to 2020. The overall goal of this study was to investigate the interconnection between CAMEL ratios and profitability, as well as the effects of CAMEL variables, bank size, and operating cost efficiency on profitability measurements of return on asset, as well as to rank banks included in this study based on their financial performances. The study used a quantitative technique from one of the three business and social research approaches. In addition to CAMEL factors, this study employed ROA as a dependent variable and bank size and operating cost efficiency as independent variables. For econometric analysis and descriptive statics for CAMEL ratios, bank size and operating cost efficiency, the researcher employed data from annual report of the banks. To test the hypothesis and evaluate the relative importance of each independent variable included in the CAMEL framework to explain dependent variables, fixed effect regression analysis was performed. The econometric analysis revealed that asset quality, earning quality, liquidity, bank size, and operating cost efficiency were significant variables in explaining ROA, although capital adequacy and management efficiency were not. According to the study, banks shall concentrate on raising their total asset by mobilizing deposits and converting them to loans, as total asset or bank size is a determinant factor in raising return on asset.
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Keywords
CAMEL, Financial performance, Bank size, Operating cost efficiency