Determinants of Net Interest Margins: Empirical Study in Ethiopian Commercial Banks
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Date
2024-06-03
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A.A.U
Abstract
Abstract
This study investigates the net interest margins (NIM) within Ethiopia's commercial banking
sector from 2013 to 2022. It operates under the assumption that macroeconomic factors and
bank-specific variables influence Ethiopian banks' net interest margins (NIM). The research
draws on various theories and empirical findings to elucidate these factors. Through a
quantitative research strategy and employing an explanatory research design, secondary data
was collected and eight commercial banks out of twenty-seven were purposively selected. Panel
data estimation techniques, primarily using fixed effects models, were applied to analyze the
impact of banks specific and macroeconomic factors on CFI. STATA 14 software was utilized
for model estimation. The results indicate that NIM is positively and significantly affected by
credit risk, loan size, liquidity, gross domestic product (GDP), and inflation. Specifically, credit
risk, loan size, liquidity risk, inflation, and GDP have a detrimental and positive effect on NIM,
while profitability, capital adequacy, and operating costs do not play a significant role.
Recommendations include enhancing credit risk management practices within banks and
policymakers fostering a conducive economic environment. Future research may consider
additional factors and incorporate newly emerging banks for a more comprehensive analysis.