Abstract:
Due to significant contribution of private commercial banks in the economic
progress of Ethiopia, this study examines factors affecting the profitability of private
commercial banks in Ethiopia by using panel data of banks over the period of 10 for
the total of six private commercial banks. The explanatory research design and
quantitative research approach was applied in the study. Using multiple linear
regression model and t-static analysis on yearly data collected from the annual
reports of those sample private commercial banks in Ethiopia. Profitability is
measured by return on assets (ROA). The bank-specific factors, which were
incorporated into the models, were credit risk management, cost efficiency, capital
adequacy, size of the bank, liquidity, deposit amount and loan amount; and Macroeconomic
external variables included in the model were inflation rate and GDP
growth.It was found that loan amount with positive relation, and deposit amount,
cost efficiency and liquidity has statistically significant effect on banks’ profitability
in a negative relationship. On the other hand, variables like capital adequacy, bank
size, credit risk management, inflation and GDP were found to have statistically
insignificant. As a result, the study recommended that private commercial banks
should on focusing and reengineering the banks alongside the key internal and
external drivers and this will enhance their performance and to improve their
profitability.
