International Journal of Finance and Banking Research

Submit a Manuscript

Publishing with us to make your research visible to the widest possible audience.

Propose a Special Issue

Building a community of authors and readers to discuss the latest research and develop new ideas.

Bank Regulations and Firm Performance: In the Case of Ethiopian Commercial Banks

Profitability is the basic aim of establishing a business, and banks are not exceptions. Thus, the main objective of the study is to examine the impact of bank regulations on the performance of commercial banks in Ethiopia. The panel data was collected from an audited financial statement of nine commercial banks for eleven consecutive years, 2011–2021. The study employed a quantitative research approach to documentary analysis. The study used a fixed effect model on the regression analysis and used E-View10 software. Return of Asset (ROA) was used as a dependent variable. While the statutory reserve requirements, legal reserve requirements, minimum capital requirement, credit risk, capital adequacy, and inflation as independent variables. The regression result revealed that legal reserve requirements, capital adequacy, and inflation had a positive and significant effect on the performance of selected commercial banks. Moreover, the statutory Reserve requirements were found to have a positive but insignificant impact on the bank's performance. On the other hand, minimum capital requirements and credit risk were found to have a negative and significant impact on the performance of selected commercial banks. The study recommended that the National Bank of Ethiopia (NBE) and other regulatory bodies follow and update reserve requirements, inflation, real GDP growth, capital requirements, and other regulations while considering the short and long-term The long-term impact of such policy changes on overall economic performance and commercial Banks in Ethiopia are also recommended to improve their capital growth and analyses the borrowers’ creditworthiness before lending out funds, and consider the deposit interest rate and sensitivity of customers to such change against inflation.

ROA, Bank Regulations, Commercial Banks, Performance, Ethiopia

APA Style

Jundi Mohammed Yusuf, Anwar Adem Shikur. (2023). Bank Regulations and Firm Performance: In the Case of Ethiopian Commercial Banks. International Journal of Finance and Banking Research, 9(4), 58-67. https://doi.org/10.11648/j.ijfbr.20230904.11

ACS Style

Jundi Mohammed Yusuf; Anwar Adem Shikur. Bank Regulations and Firm Performance: In the Case of Ethiopian Commercial Banks. Int. J. Finance Bank. Res. 2023, 9(4), 58-67. doi: 10.11648/j.ijfbr.20230904.11

AMA Style

Jundi Mohammed Yusuf, Anwar Adem Shikur. Bank Regulations and Firm Performance: In the Case of Ethiopian Commercial Banks. Int J Finance Bank Res. 2023;9(4):58-67. doi: 10.11648/j.ijfbr.20230904.11

Copyright © 2023 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

1. Abou Elseoud, M. S., Yassin, M., & Ali, M. A. M. D. (2020). Using a panel data approach to determining the key factors of Islamic banks’ profitability in Bahrain. Cogent Business & Management, 7 (1), 1831754.
2. Acaravci, S. K., & Çalim, A. E. (2013). Turkish banking sector’s profitability factors. International Journal of Economics and Financial Issues, 3 (1), 27-41.
3. Adu, D. T., Domfeh, K. O., & Denkyirah, E. K. (2016). Is inflation a threat on financial sector performance. European Journal of Business and Management, 8 (33), 59-71.
4. Alemayehu, A. (2018). The Effect of NBE Bill on the Performance of Commercial Banks Lemma. Master’s Thesis, Addis Ababa University.
5. Alemu, D. (2015). Assessment of banking performance using capital adequacy in Ethiopia. Economics, 4 (6), 106-111.
6. Almaqtari, F. A., Al-Homaidi, E. A., Tabash, M. I., & Farhan, N. H. (2019). The determinants of profitability of Indian commercial banks: A panel data approach. International Journal of Finance & Economics, 24 (1), 168-185.
7. Anagaw, A. (2017). The Effect of Bank Regulation on Profitability of Private Commercial Banks in Ethiopia (Doctoral dissertation, Doctoral dissertation, Addis Ababa University).
8. Arif, A., & Nauman Anees, A. (2012). Liquidity risk and performance of banking system. Journal of Financial regulation and compliance, 20 (2), 182-195.
9. Biru, A. M. (2021). Determinants of financial performance of private commercial banks in Ethiopia. Academy of Accounting and Financial Studies Journal, 25, 1-17.
10. Borowski, P. F., Balcha, S. G., & Girma, M. (2017). Issues related to the loans action in the opinions of the customers and the employees of a commercial bank-United Bank SC in Ethiopia. Journal of Management and Financial Sciences, (27), 39-57.
11. Budhu. P. (2019). Bank’s Profitability: A Case Study in Guyana. Texila International Journal of Management. Special Edition Apr 2019. DOI: 10.21522/TIJMG.2015. SE.19.01.
12. Chowdhury, M. A. F., & Rasid, M. E. S. M. (2016). Determinants of performance of Islamic banks in GCC countries: Dynamic GMM approach. In Advances in Islamic finance, marketing, and management: An Asian perspective (pp. 49-80). Emerald Group Publishing Limited.
13. Dembel, B. (2020). Factors affecting the performance of commercial banks (A case study on commercial banks in Ethiopia): CAMEL ratings. Research Journal of Finance and.
14. ERDOGAN, M., & AKSOY, E. E. (2016). Banking Regulation and Determinants of Banks Profits: Empirical Evidence from Turkey. Eurasian Journal of Business and economics, 9 (17), 109-124.
15. Ermias, M. (2016). Financial Performance of Private Commercial Banks in Ethiopia: A CAMEL Approach. A Thesis. Department of Accounting and Finance Addis Ababa University, Addis Ababa, Ethiopia.
16. Fanos L. (2020). The Effect of Bank Regulation on Profitability and Liquidity of Private Commercial Banks in Ethiopia.
17. FELEKE, L. (2021). THE EFFECT OF BANK REGULATION ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN ETHIOPIA (Doctoral dissertation, ST. MARY’S UNIVERSITY).
18. Imran, K., and Nishat, M., (2013). Determinants of bank credit in Pakistan: a supply side approach. Economic Modelling, 35: 384-390.
19. Isayas, Y. N. (2022). Determinants of banks’ profitability: Empirical evidence from banks in Ethiopia. Cogent economics & finance, 10 (1), 2031433.
20. Kargi, H. S. (2011). Credit risk and the performance of Nigerian banks. A study of GTB PLC (1991-2010). Journal of Business Research Administration, 3 (2), 112-119.
21. Kebede, E. (2014). The impact of national bank regulation on banks performance: evidence from the private banks of Ethiopia. Unpublished MSc thesis, Addis Ababa University.
22. Melaku A. M. (2016). Determinants of Bank Profitability in Ethiopia: A Case Study of Private Commercial Banks. Research Journal of Finance and Accounting, 7 (7), 1-16.
23. Mirzaei, A., Moore, T., & Liu, G. (2013). Does market structure matter on banks’ profitability and stability? Emerging vs. advanced economies. Journal of Banking & Finance, 37 (8), 2920-2937.
24. Musengimana, N. O., & Mulyungi, P. (2018). Effects of Prudential Regulations on Financial Performance of Commercial Banks in Rwanda: A Case of Bank of Kigali. International Journal of Science and Research, 7 (10).
25. Naceur, S. B., & Kandil, M. (2009). The impact of capital requirements on banks’ cost of intermediation and performance: The case of Egypt. Journal of Economics and Business, 61 (1), 70-89.
26. Nahom, D. (2015). The determinate of bank performance for private commercial banks in Ethiopia. St. Mary’s university.
27. Ndugbu, M. O., & Okere, P. A. (2015). Monetary policy and the performance of deposit money banks: The Nigerian experience. European Journal of Business and Management, 7 (17), 65-72.
28. Olweny, T., & Shipho, T. M. (2011). Effects of banking sectoral factors on the profitability of commercial banks in Kenya. Economics and Finance Review, 1 (5), 1-30.
29. Pasiouras, F., Tanna, S., & Zopounidis, C. (2009). The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence. International review of financial analysis, 18 (5), 294-302.
30. Punita, J. and Somaiya, D. (2006). Effect of Legal reserve requirements on the lending of banks to small and medium firms in India between 1995 and 2000. Journal of finance and banking.
31. Raza, S. A., Jawaid, S. T., & Shafqat, J. (2013). Profitability of the banking sector of Pakistan: Panel evidence from bank-specific, industry-specific and macroeconomic determinants.
32. Rushchyshyn, N., Mulska, O., Vasyltsiv, T., Nikolchuk, Y., & Rushchyshyn, M. (2021). The impact of banking sector development on economic growth: comparative analysis of Ukraine and some EU countries. Investment Management and Financial Innovations, 18 (2), 193-208.
33. Shibiru, A. (2014). Assessing the Implications of Regulatory Policy on the Development of Private Commercial Banks in Ethiopia: A Case of NBE Bills Purchase Directive. Addis Ababa University.
34. Singh, A., & Sharma, A. K. (2016). An empirical analysis of macroeconomic and bank-specific factors affecting liquidity of Indian banks. Future Business Journal, 2 (1), 40-53.
35. Tekalegn K. (2020). The effect of National Bank of Ethiopia’s prudential Regulation on the performance of Private Commercial Banks in Ethiopia. Unpublished Master‟s Thesis, Addis Ababa University.
36. Trujillo-Ponce, A. (2013). What determines the profitability of banks? Evidence from Spain. Accounting & Finance, 53 (2), 561-586.
37. Tsuma, M. W., & Gichinga, L. (2016). Factors influencing financial performance of commercial banks in Kenya-A case study of national bank of Kenya Coast Region. The International Journal of Business & Management, 4 (4), 62.
38. Udeh, S. N. (2015). Impact of monetary policy instruments on profitability of commercial banks in Nigeria: Zenith bank experience. Research Journal of Finance and Accounting, 6 (10).
39. Uremadu, S. O. (2012). Bank capital structure, liquidity and profitability evidence from the Nigerian banking system. International Journal of Academic Research in Accounting, Finance and Management Sciences, 2 (1), 98-113.
40. Zegeye, T. (2018). The Effect of Bank Regulation on Profitability of Private Commercial Banks in Ethiopia (Doctoral dissertation, Doctoral dissertation, Addis Ababa University).