Determinants of Profitability of Commercial Banks in Ethiopia
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Date
2018-01
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Addis Ababa University
Abstract
The purpose of this study was to investigate determinants of commercial banks
profitability in Ethiopia by using panel data of eight commercial banks from year 2005 to
2016. The study used quantitative research approach and secondary financial data were
analyzed by using multiple linear regressions models. Fixed effect regression model was
applied to investigate the impact of bank size, capital adequacy, liquidity risk, operating
efficiency, management efficiency, employee efficiency, and funding cost, banking sector
development, real GDP, inflation rate and foreign exchange rate on Return on Asset
(ROA). The findings of the study show that bank size, capital adequacy and gross domestic
product have statistically significant and positive relationship with bank’s profitability.
On the other hand, variables like liquidity risk, operational efficiency, funding cost and
banking sector development have a negative and statistically significant relationship with
banks’ profitability. However, the relationship for management efficiency, employee
efficiency, inflation and foreign exchange rate was found to be statistically insignificant. The
study suggests that focusing and reengineering the banks alongside the key internal drivers
should enhance the profitability of the commercial banks in Ethiopia.
Description
A thesis submitted in the partial fulfillment of the
Requirements for the degree of masters of Science in
Accounting and finance
Keywords
Commercial Banks, Profitability