Determinants of Financial Performance of Private Commercial Bank in the Case of Different Banks
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Date
2026-05-23
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Addis Ababa University
Abstract
This study examines the determinants of financial performance of commercial banks in Ethiopia by using panel data of seven sample private banks out of thirteen commercial banks operated in Ethiopia over the period 2010-2024. Since the data is secondary in nature, the quantitative approach to research was used. Besides, the random effect model was used. Financial performance was measured through return on assets, return on equity, and net interest margin. The studies were conducted pooled ordinary least squares, fixed effects, and random effects regression models, with model selection being determined by the Hausman specification test. The findings suggests that capital adequacy, liquidity management, digital banking adoption, environmental, social and governance (ESG) practices, and corporate governance have a strong and statistically significant positive impact on the financial performance of Ethiopian private commercial banks, measured by ROA, ROE, and NIM. Bank size significantly increases ROE and NIM, pointing to the existence of scale economies, while its impact on ROA is less stable. Macroeconomic conditions are important, as GDP growth positively affects profitability, whereas inflation has a consistently negative and significant impact on all performance indicators. Digital banking adoption stands out as an essential factor of profitability, especially for ROE and NIM, which implies that technological innovation brings about efficiency and revenue gains. As a whole, the findings validate that bank, specific, institutional, technological, sustainability, and macroeconomic factors together account for the variations in bank financial performance..
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Return on Asset, Return on equity, CGS, Digital Banking, Environment