Determinants Of Financial Performance: Evidence From Private Commercial Banks In Ethiopia.

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