DETERMINATES OF BANK PROFITABILITY: “An Empirical Study on Ethiopian Private Commercial Banks”

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.