Determinants of Profitability of Commercial Banks in Ethiopia

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Addis Ababa University


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.


A thesis submitted in the partial fulfillment of the Requirements for the degree of masters of Science in Accounting and finance


Commercial Banks, Profitability