Determinants of Bank Profitability in Selected Private Commercial Banks of Ethiopia

No Thumbnail Available

Date

2024-01-06

Journal Title

Journal ISSN

Volume Title

Publisher

A.A.U.

Abstract

The banking industry plays a major role in the development of a country. For financial institutions profitability is a major objective. The performance of banks as compared to other banks in the industry is a crucial information for the bank itself, regulatory bodies such as National bank of Ethiopia, and other stakeholders. This study assessed the determinants of profitability for private commercial banks in Ethiopia using panel data of sixteen commercial banks covering a period of five years (2018-2022). Quantitative approach was applied since all the data used for the study was of secondary type. The target population for the study was the private commercial banks in Ethiopia yet a sample of sixteen banks were taken to implement the study using nonprobability purposive sampling method. Explanatory research design was used to explain the relationship the dependent variable has with the explanatory variables. Fixed effect model was applied to conduct a multiple regression analysis on the balanced panel data sets. The explanatory variables used in the study comprised of both internal and external factors which include revenue diversification, loan to deposit ratio, expense management, capital adequacy, bank size, nonperforming loan ratio, market share, inflation and GDP while the dependent variable chosen to measure profitability was the return on asset. The findings of the study indicate that revenue diversification, capital adequacy, and market share are statistically significant variables that have a positive effect on return on asset while expense management and nonperforming loan ratios have a negative but significant impact on profitability. On the other hand, loan to deposit ratio, size, inflation and GDP were statistically insignificant variables based on the results of the study

Description

Keywords

Citation