The Effect of Bank Regulation on Financial Performance of Private Commercial Banks in Ethiopia
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Date
2022-04
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A.A.U
Abstract
This study assesses the effect of bank regulations on Financial-performance of private banks in
Ethiopia by employing regulatory variables, Bank-specific variables, and Macroeconomic
variables by interpreting the result among financial performance and regulation. Balanced fixed
effect panel regression is used for the data of twelve private commercial banks found in Ethiopia
in the sample covering the period from 2011 to 2020 for ten consecutive years. The study
follows a quantitative research approach, and it is analyzed based on their audited financial
statement. The study utilized return on asset (ROA) as a dependent variable and seven
independent variables. Those are: reserve requirement, liquidity requirement, asset quality,
minimum capital requirement, market risk, management efficiency, and real GDP growth rate.
The outcome of panel data regression analysis showed that capital requirement and management
efficiency had a positive and statically significant effect on the financial performance of private
commercial banks. The private commercial banksgetbenefited by raising their paid-up capital for
expanding the market share, growing competitiveness, financial performance, and absorbing
unexpected risks. Reserve requirements had a negative and statically significant effect on the
financial performance of private commercial banks. So the result recommended that before
applying the regulation, NBE should use sufficient studies and amend the requirement to
enhance private commercial banks. Liquidity position determines how well liquid to cover
immediate disturbance to the financial health of the bank. Asset quality is a good indicator of
financial health. So, it must be kept by the bank's practice, and NBE continue its monitoring to
further improve financial resilience and soundness of banks and the banking system.
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Keywords
Bank, bank regulation, financial performance