Effect of Inflation on the Profitability of Commercial Banks in Ethiopia
No Thumbnail Available
Date
2025-05-03
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U
Abstract
Ethiopia has seen steadily climbing inflation in the past few years, with profound effects on
many sectors of the economy, including the banking sector. Yet the exact impact of this
recent, double-digit inflation on Ethiopian commercial banks’ profitability remains open for
further evaluation. For this purpose, using panel data from 2010 to 2022, this study
analyses both macroeconomic and bank-specific factors that affect Ethiopian commercial
banks’ profitability - with particular attention to inflation. The study employed a panel data
regression method. The panel data estimates show that the profitability of commercial banks
(as determined by return on assets) is positively and statistically significantly impacted by
inflation. The findings of the study emphasize the necessity for commercial banks in Ethiopia
to diversify their revenue streams, keep an eye on the policy and real interest rates, and
prioritize efficiency and competitiveness. To stabilize the inflationary pressure in the
economy, the paper also recommends that the National Bank of Ethiopia keep implementing
the required timely macroeconomic measures and properly manage its interest rate policy.