Determinant of Commercial Banks Performance in Ethiopia

Abstract

Both internal and external determinants of Bank performance affect the performance of Commercial Banks in Ethiopia. This study identifies bank specific, industry specific and macroeconomic factors that determine the performance of Ethiopian commercial banks. The study used panel data of six commercial banks have been the subject for the study ranging from 2006 to 2016. The study employed an explanatory type of research and secondary financial data were used. The study bank’s Audited financial statement, National Bank of Ethiopia and Ministry of finance and Economic Cooperation has been the main source for the study and the panel analysis has been carried out to obtain the result for this empirical study. The study used ROA as a Dependent variable and capital adequacy, operational efficiency, liquidity, income diversification, concentration, GDP, inflation and money supply as independent variable Based on the result of Hausman specification test the study used fixed effect model. The empirical results showed that capital, operational efficiency, income diversification, concentration and money supply have significant relationship with performance of Ethiopian commercial banks. However, the result shows insignificant relationship between performance of Ethiopian commercial banks with liquidity, GDP and inflation