The Determinants of Financial Distress: Empirical Evidence from Banks in Ethiopia
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Date
2017-01
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Addis Ababa University
Abstract
This research is aimed to test the level of financial distress of commercial banks in Ethiopia and
identify its determinant. In order to achieve these objectives secondary data was collected for
eight banks for sample period covering from 2006 to 2015 and analyzed using descriptive
statistics and fixed effect (FE) regression model. Based on the descriptive statistics the study
concludes that sampled banks were under distress. The FE regression model identified capital
adequacy, management efficiency, earning ability and bank size as having negative effect on
banking financial distress and except size all of them appeared significant; whereas asset quality
and liquidity appeared as having positive effect, but liquidity was only significant. Regarding the
macroeconomic factors, economic growth and saving interest rate have significantly negative
and positive effect on banking financial distress respectively; whereas inflation was not
significant. In general, the research concludes that both bank specific and macroeconomic
factors determine the level of financial distress of Ethiopian commercial banks.
Key words: Altman Z-score, CAMEL, Financial Distress, Ethiopian Commercial Banks
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Keywords
Altman Z-score, CAMEL, Financial distress, Ethiopian commercial banks