Determinants of Ethiopian Commercial Banks Profitability
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Date
2024-12-25
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Publisher
AAU
Abstract
This study investigates the factors influencing the profitability of commercial banks in
Ethiopia, utilizing Generalized Least Squares (GLS) methods on unbalanced panel data from
16 banks over the period of 1998 to 2023. In this study Return on equity (ROE) is the
dependent variable in the random effect model regression analysis. It looks at how ROE is
related to a number of internal and external factors, such as bank size, liquidity ratio,
efficiency ratio, capital adequacy, loan-to-deposit ratio, GDP, and inflation. The findings
reveal that GDP, bank size, loan-to-deposit ratios, capital adequacy, and efficiency ratios
positively and significantly impact the profitability of Ethiopian commercial banks.
Conversely, liquidity does not show a statistically significant effect, while inflation negatively
affects profitability. Based on these insights, the study recommends that Ethiopian
commercial banks pursue strategic mergers to enhance size and profitability, optimize loan to-deposit ratios, strengthen capital adequacy, implement effective cost management
strategies, diversify revenue streams, and promote a stable economic environment to support
GDP growth and mitigate inflation