Determinants of Profitability in Private Commercial banks of Ethiopia
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Date
2020-03
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A.A.U
Abstract
This study analyzes the determinants of profitability of private commercial banks in Ethiopia using panel data of twelve sample commercial banks out of total population of sixteen private commercial banks operated in Ethiopia over the period 2013/14-2018/19. The study used quantitative research design. Purposive sampling technique is adopted to select sample private commercial banks. Secondary data are collected and organized from audited financial statements of sample private commercial banks. Macroeconomic date for the data set period is collected from National bank of Ethiopia. Bank specific and macroeconomic explanatory variables are considered in the study. The internal factors used in this study include asset quality, capital adequacy, income from foreign exchange transaction, branch efficiency in income and expense containment, branch location, market share and income from investment in subsidiaries. Moreover, annual gross domestic product growth and annual inflation rate are used in the study. Return on asset and return on equity are used to measure profitability. After the data has been collected and organized, STATA 13 is used for data analysis purpose. Descriptive and correlational relations are used to analyze the data. Different diagnostic tests are applied to ensure CLRM assumptions (Normality, Homoscedasticity and Multocolliniearity) for the data set. The regression analysis is made after ensuring CLRM assumptions. As the data set is a balanced panel data type, the appropriate model is selected through hausman test. Based on the result of Hausman specification test, Random effect GLS model is found appropriate and is used to analyze the data. The regression result shows that capital adequacy, income from foreign exchange transactions, branch efficiency in expense, market share and annual inflation rate are found significant determinants of profitability at 5% confidence level. Preset hypotheses are evaluated based on the result generated from the regression analysis. Finally it is recommended that management of private commercial bank should exert extra effort to increase income from foreign exchange, control general and administrative costs, secure better market share in loans and advances and finding the equilibrium level of the proportion between own investment and deposit mobilization in order to maximize profitability.
Description
A thesis submitted to Addis Ababa University College of Business and Economics Department of Accounting and Finance in Partial fulfillment of the requirement for the degree of Masters of Science in Accounting and Finance
March
Keywords
Dependent variables, Explanatory variables, Profitability, Private commercial banks