Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks
Journal of Investment and Management
Volume 8, Issue 1, February 2019, Pages: 8-15
Received: Dec. 24, 2018;
Accepted: Jan. 20, 2019;
Published: Jan. 31, 2019
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Yalemselam Worku Bogale, Department of Accounting and Finance, Debre Berhan University, Debre Berhan, Ethiopia
The objective of this study was investigating factors affecting the profitability of private commercial banks in Ethiopia, covering ten years period from 2008 to 2017, using unbalanced panel data from fourteen Ethiopian private commercial banks. In this study, survey was used as a method of a research design, which allows collecting quantitative data that was analyzed quantitatively using STATA 13 software. The variables covered under this study were both bank specific factors (capital adequacy, bank size, liquidity risk, credit risk, and operation efficiency) and macroeconomic factors (real GDP growth rate, inflation, foreign exchange rate, and lending interest rate). The fixed effect regression output revealed that from bank specific variables; capital adequacy and bank size have significant positive effect on profitability. Besides, operation efficiency has a negative significant effect on profitability, but liquidity risk and credit risk were found not powerful variables in the determination of banks profitability. From macroeconomic variables; foreign exchange rate and lending interest rate were found to have significant (though at 10% level of significance) negative effect on Ethiopian private commercial banks profitability. Conversely, real GDP growth rate and inflation rate were found statistically insignificant. Generally, in this study bank specific factors have more significant effect than macroeconomic factors. So, private commercial banks in Ethiopia were suggested to increase their stockholders equity, asset size and implement an effective and efficient expense management practice in order to boost their profitability.
Yalemselam Worku Bogale,
Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks, Journal of Investment and Management.
Vol. 8, No. 1,
2019, pp. 8-15.
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