FACTORS AFFECTING PROFITABILITY OF COMMERCIAL BANKS IN ETHIOPIA

Abstract

Both internal and external factors profitability Commercial Banks in EthiopiaThe study used panel data of eight commercial banks from year 2013 to 2017. The study employed an explanatory type of research and secondary financial data were used. Random effect regression model was applied to investigate the impact of capital adequacy, operational efficiency, liquidity risk, bank size and concentration on profitability. Return on assets (ROA) was used as a measure of profitability. Based on the result of hausman specification test the study used random effect model. The major findings of the study show that capital adequacy, banksize have statistically significant and positive relationship with banks’ profitability. Further, the results from the panel regression suggest that, operational efficiency have a negative and statistically significant relationship with banks profitability. However, the liquidity risks have a negative and statistically insignificant relationship with banks profitability.Theconcentration has a positive and statistically insignificant relationship with banks profitability. The study suggests focusing and redesigns the firms together with significant key internal and external drivers of profitability of commercials banks.