Determinants of profitability of private commercial banks in Ethiopia

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Date

2025-03-05

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A.A.U

Abstract

The study seeks to identify the determinants of performance of private banks by considering the new NBE directive of Surrendering percentage of Foreign Exchange Inflow to the National Bank of Ethiopia and other bank specific factors.. In order to realize the objective of the study, mixed research design was used whereby descriptive, econometrics and qualitative approaches were blended. Data were collected mainly from secondary data emerged from annual reports, of all 16 private banks using censes sampling method. For the analysis of data, descriptive statistics and econometrics model (random effect panel regression) were used. Moreover, qualitative data analysis was used to substantiate the arguments obtained through the quantitative analyses. The findings of the study show that managerial efficiency and Net interest margin has found statistically significant and positive relationship with banks’ profitability. On the other hand, variables loan provision amount negative and statistically significant relationship with banks’ profitability. Therefore, considering the output of the research it is recommended that private commercial banks should increase their managerial efficiency, net interest margin and lowering their NPL position to minimize the provision amount held for each loan loss in order to be profitable. Moreover, the government should revise its policy imposed on private banks and further exploration on the long run impact of the requirement is recommended.

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