Determinants Of Profitability In Ethiopian: The Case Of Privet Commercial Banks.

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.