Factors Affecting Profitability Of Selected Commercial Banks In Ethiopia

Abstract

The main objective of the study was to investigate factors affecting profitability of selected commercial banks in Ethiopia using panel data. For this study the panel data of eleven purposively selected commercial banks from 2014 to 2022 was collected from national bank of Ethiopia. Explanatory research design and quantitative research approach were used. Both descriptive statistics and econometric models were employed to analyze the data. The data were checked for the presence of multicolinarity, normality and autocorrelation problems. Hausmen test was used to select best model to analysis the data. The result of random effect regression shows that liquidity ratio, unemployment rate had negative and 1% significant impact on return on asset. The result also depicted capital adequacy ratio, total loan to total deposit ratio, bank size, and inflation rate affected return on asset positively and significantly at 1% significance level. On the other hands, the model result shows bank size, and total loan to deposit ratio affected return on equity positively and significantly at 1% significance level. Moreover liquidity ratio, capital adequacy ratio, unemployment rate, and total loan to asset ratio affected return on equity positively and significantly at 1% significant level. This study recommends commercial banks of Ethiopia to collaborate with government programs to reduce unemployment rate by developing specialized lending programs for unemployed individuals, diversify asset portfolios, expand its new branches in order to increase the profitability.