Abstract:
The main purpose of this research study was to examine the effect of bank-specific and
macroeconomic determinants of commercial bank profitability in Ethiopian. The
research study deployed panel data of six commercial banks from year 2010 to 2019.
The study employed an explanatory type of research and secondary financial data were
used. Fixed effect regression model was applied to investigate the impact of bank size,
capital adequacy, liquidity risk, management efficiency, loan to deposit ratio, funding
cost, foreign exchange rate, GDP and inflation rate on profitability. Return on assets
(ROA) used as a measure of profitability. Based on the result of hausman specification
test the study used fixed effect model. The major findings of the study show that
liquidity risk, loan to deposit ratio, management efficiency, GDP and inflation rate have
statistically significant and positive relationship with banks’ profitability. Furthermore,
the results from the panel regression suggest that, funding cost have a negative and
statistically significant relationship with banks’ profitability. However, the relationship
for capital adequacy, bank size and foreign exchange rate was found to be statistically
insignificant. The study recommends focusing and redesigning the firms together with
significant key internal and external drivers of profitability of commercials banks in
Ethiopia should be given a due attention.
