Factors Affecting the Profitability of Private Commercial Banks in Ethiopia: A Panel Data Analysis (2012-2023)
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Date
2024-06-15
Authors
Wuletaw Adamu
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Publisher
A.A.U
Abstract
The primary aim of this study is to examine the factors that affect private commercial banks profitability in Ethiopia between 2012 and 2023. The National Bank of Ethiopia and the yearly audited financial reports of 13 particular private commercial banks were consulted by the researcher in order to accomplish this goal. We examined the factors affecting private commercial banks profitability using descriptive analysis, correlation analysis and Random effect panel data regression analysis. Return on assets (ROA) was used as the proxy for profitability and the dependent variable. The findings of this study conclude that bank size, non-interest income, market share, and GDP growth rate had a positive and significant effect on the profitability of private banks in Ethiopia. In contrast, credit risk and operational cost efficiency ratio negatively and significantly impacted profitability. The study also found that loan deposit ratio, capital adequacy, and inflation had an insignificant effect on the profitability of private banks. The major findings of the study show that bank size, credit risk, operational cost efficiency, non-interest income, and market share are very important in explaining profitability with a highly significant value. Therefore, due attention should be given to ensuring factors specific to banks and the industry for the better performance and profitability of private commercial banks in Ethiopia.
Key Words: private commercial banks of Ethiopia, profitability, Random Effect panel model