Abstract:
This study investigates the factors influencing the financial performance of commercial banks in Ethiopia, focusing on ten major institutions, including the CBE, Awash Bank, Dashen Bank, Abyssinia Bank, Wegagen Bank, Hibret Bank, Nib Bank, Oromia Bank, Cooperative Bank of Oromia and Zemen Bank. Using secondary data from Respective banks as well as national bank sources, the research identifies macroeconomic volatility particularly inflation, foreign exchange risks, and elevated lending rates as critical drags on Return on Assets (ROA). From the regression result it is indicated that: Real Lending Interest Risk exhibits the strongest negative impact (B = -0.480, p < 0.001), Foreign Exchange Risk (B = -0.233, p = 0.001) also significantly undermines ROA, Credit Risk (B = -0.144, p = 0.017) underscores the drag of loan defaults on profitability, Conversely, Real Gross Product (B = 0.132, p = 0.005) demonstrates that Ethiopia’s economic growth, Inflation Risk (B = -0.190, p = 0.001) reflects the detrimental impact. The regression model explains 82.8% of ROA variance explained by the model, highlighting the robustness for the six predictors. Key conclusions emphasize the dual challenge of balancing monetary tightening for inflation control with growth-oriented policies, alongside systemic gaps in risk management and financial access. Recommendations propose actionable strategies for banks (e.g., diversifying forex holdings, digital transformation), policymakers (e.g., strongly following up the forex markets, tiered capital adequacy ratios), and stakeholders (e.g., public-private partnerships for rural infrastructure). The study underscores the urgency of aligning macroeconomic stability with institutional reforms to enhance sector resilience, offering insights for emerging economies facing similar structural and regulatory complexities
