Asian Journal of Research in Business Economics and Management
Year : 2014, Volume : 4, Issue : 7
First page : ( 1) Last page : ( 12)
Online ISSN : 2249-7307.

Determinants of Commercial Banks Profitability in Ethiopia

Agama Daniel Tolesa

Lecturer, Department of Accounting and Finance, Business and Economics College, Jimma University, Jimma, Ethiopia

Online published on 5 July, 2014.

Abstract

The purpose of this study is to explore the impact of bank specific and macro level factors on profitability of commercial banks in Ethiopia. The analysis is based on balanced panel data of eight larger commercial banks over the period of 2000 to 2009. Return on average assets (ROAA) were used for measurement of profitability. The random effect estimator utilized provides evidence that the profitability of Ethiopian commercial banks is affected by both bank-specific and macroeconomic factors. Banks’ asset composition, operational efficiency, market share and country's economic growth has significant positive contribution on their profitability; while asset quality and real market interest rate has statistically significant negative impact. The macroeconomic variables, country's economic growth and real interest rate, have statistically significant positive and negative impact on bank's profitability respectively. Moreover, there is no evidence found in support of difference in profitability of state owned and private owned commercial banks in Ethiopia. The findings of this study have several managerial implications including, improvement in operational efficiency and quality of loan, increase in market share and asset composition leads to higher bank profitability.

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Keywords

Commercial banks, Profitability, Determinants.

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