The Determinants of Financial Distress: Empirical Evidence from Banks in Ethiopia

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Addis Ababa University


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



Altman Z-score, CAMEL, Financial distress, Ethiopian commercial banks