Abstract:
Profitability of commercial banks is vital for sustained growth of national economies;
profitability let commercial banks stimulate and feed investments; have strong financial position
and sustainable business. One aspect of studying profitability of commercial banks is identifying
internal and external determinant factors because their management bodies could take actions to
boost their status in the industry. Therefore, the purpose of this study is to investigate
determinants of private commercial banks profitability in Ethiopia by using panel data of eight
private commercial banks which had been selected purposively from year 2007 to 2016. The
study used explanatory research following a quantitative approach and secondary financial data
are analyzed by using multiple linear regression model of the bank’s profitability measurement;
Return on Asset (ROA). Fixed effect regression model was applied to investigate the influence of
capital adequacy, managerial efficiency, liquidity, bank size, real GDP growth rate and inflation
on major bank profitability measurement (ROA). The empirical results shows that bank specific
factors; bank asset Size and managerial efficiency and macro-economic factors; level of GDP,
and inflation have positive significant influence on the profitability of private commercial banks
in Ethiopia, Whereas, bank specific factors; capital adequacy and liquidity have negative
insignificant influence on the profitability of private commercial banks in Ethiopia as it
measured by ROA during the study period of 2007 to 2016.
