DETERMINANT OF COMMERCIAL BANKS PROFITABILITY IN ETHIOPIA (CASE STUDY SELECTED COMMERCIAL BANKS IN ETHIOPIA)

Abstract

The aim of this study was to investigate the effect of bank-specific and macroeconomic determinants of commercial bank profitability in Ethiopian. The study was selected six commercial banks from year 2010 to 2017. The study was used an explanatory type of research design and it would be use secondary financial data and Fixed effect regression model was applied to examine the impact of bank size, capital adequacy, management efficiency, loan to deposit ratio, funding cost, foreign exchange rate, GDP and inflation rate on profitability. Return on assets (ROA) was use as a measure of profitability. The major examining of the study would be showing that management efficiency and inflation rate was statistically significant and positive relationship with banks’ profitability. Funding cost, bank size, foreign exchange rate and GDP have a negative and statistically insignificant relationship with banks’ profitability. Also the relationship for capital adequacy and loan to deposit ratio was found to be positive relationship with profitability and statistically insignificant. The study suggests focusing and redesigns the firms together with significant key internal and external drivers of profitability of commercials banks in Ethiopia.