Determinants of Profitability of Commercial Banks in Ethiopia
No Thumbnail Available
Date
2017-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
This study examines the determinants of commercial banks profitability in Ethiopia by using
panel data of thirteen sample commercial banks out of seventeen commercial banks currently
operated in Ethiopia over the period 2010-2015.Since the data is secondary in nature, the
quantitative research approach was used. Besides, the fixed effect model was used. The factors
used in this study include bank size, loan, expense management, revenue diversification,
liquidity, capital adequacy and interest income and Return on Asset (ROA) were used to measure
the bank’s profitability. The findings of the study show that bank size, loan, revenue
diversification, capital adequacy and interest income have statistically significant and positive
relationship with profitability. On the other hand, expense management (operating expense) has
a negative and statistically significant relationship with banks’ profitability. However, the
relationship between liquidity management and profitability is found to be statistically
insignificant. The study suggests management bodies of commercial bank should strive to
strengthen the identified significant factor banks size, loan, revenue diversification, capital
adequacy and interest income as this will enhance the performance of the banks. Moreover,
commercial banks need to invest in recent technologies and management skills which minimize
operational expense as this will affect positively on their performance.
Key words: profitability, commercial banks, returns on asset
Description
Keywords
profitability, commercial banks, returns on asset