FACTORS AFFECTING THE PERFORMANCE OF SELECTED PRIVATE COMMERCIAL BANKS IN ETHIOPIA

Abstract

This study examined factors affecting performance of private commercial banks’ in Ethiopia. The study is employed descriptive type of research design with both quantitative and qualitative data analysis research methods was used and the panel model was used to examine the six leading private commercial banks including Abyssinia Bank, Awash Bank, Dashen Bank, Nib International Bank, United Bank and Wegagen Bank registered by the NBE that have at least six years data 2013-2018 purposefully taken for this study to estimate the performance, which was measured by return on asset as a function of balance sheet and macroeconomic explanatory variables. The sampling design that the investigator was used purposive sampling under this study. In order to achieve the stated research objectives the secondary and primary data was gathered. Thus, the collected panel data was analyzed by using descriptive statistics, correlations, multiple linear regression analysis and inferential statistics. The finding of the study show that, deposit with other bank and saving deposit have statistically significant and positive relationship with banks’ performance. On the other hand, variables like sum of investment, fixed deposit and bank size have a negative and statistically significant relationship with banks’ performance. However, the relationship of loan and advance, demand deposit, gross domestic product and inflation rate is found to be statistically insignificant. As a result, the study recommended that private commercial banks should focus on increasing public awareness to mobilize more savings this will enhance their performance in provision of loans and advance to customers. Finally, private commercial banks should not only be concerned about internal structures and policies, but they must consider both the internal environment and the macroeconomic environment together in fashioning out strategies to improve their performance.