Abstract:
This study examined the determinants of financial performance by using panel data of
private own commercial banks over the period 2013-2020 Since the data was
secondary in nature, the quantitative approach to research was considered. Besides,
the random effect model was used. The random effect model is preferred to the fixed
effect model based on the Housman specification test. Under this study, both specific
and macroeconomics factors were included. The specific factors were included such
as capital adequacy, operational efficiency, resource mobilization, loan outstanding
growth, and liquidity management whereas the macroeconomic factors were real
GDP growth and inflation. Moreover, return on asset and Return on equity were used
as the performance measurement. Based on the ROA regression result, from bank
specific variables the capital adequacy was positively and significantly affects ROA
whereas operational efficiency was negatively and significantly affects financial
performance of the Ethiopian private banks. However, based on the ROE regression
result the outstanding loan growth positively and operational efficiency negatively
affect the Ethiopian private commercial bank significantly. In addition to this, macro economic factors were not significant effect on the performance of banks. Finally,
concluded based on finding that banks profitability in the Ethiopian banking sector is
largely influenced by both specific (internal) & macroeconomics (external) factors
