"The Effect Of Financil Risk On Financial Performances Of Ethiopia Commercial Banks

Abstract

This study investigates the effects of financial risks on the financial performances of sampled commercial banks in Ethiopia. Six independent variables focusing on Return on Assets were selected based on a review of available empirical evidence and consideration of the nature and data availability of Ethiopian commercial banks. The study examines the effects of seven bank-specific risks over the period of 2017 to 2023, including Inflation risk, Interest return risk, Foreign exchange risk, real lending interest risk, Real growth product, and Credit risk. Adopting a mixed research approach with a dominant quantitative method, data were collected primarily through a survey of documents, including structured reviews of annual financial statement reports. Descriptive statistics, multiple linear regression model assumptions tests, and hypothesis testing were conducted using statistical software. The study reveals significant negative effects of credit risk, inflation risk, real lending interest rate risk, interest rate risk, and foreign exchange rate risk on the financial performance of sampled commercial banks, while real GDP growth rate had a significant positive effect. About 77.9% of Return on Assets was covered through the study, leaving 21.1% for further investigation. Recommendations include implementing robust credit risk management strategies, supporting initiatives for real gross rate enhancement, mitigating inflation rate effects, managing real lending interest rate risk, mitigating interest rate risk, managing foreign exchange risk, and conducting further research to explore additional factors impacting financial performance. Implementing these recommendations help Ethiopian commercial banks effectively manage financial risks, enhance financial performance, and contribute to economic development.