Performance Evaluation of Banks in Ethiopia: a Case of Four Selected Commercial Banks

Abstract

Evaluation of banks performance is very important to ensure sound and stable financial system in the economy, and then to increase the contribution of the banking industry towards the growth and development of the economy. Thus, this study was conducted bearing this purpose aimed at evaluating the performance of four Ethiopian private commercial banks namely, Dashen Bank, Nib International Bank, Wegagen Bank, and Zemen Bank, they maintained over the past five years, 2010 through 2014. The study employed CAMELS model i.e. evaluating the performance of those banks based on six parameters such as Capital adequacy, Asset quality, Management efficiency, Earnings ability, Liquidity and Sensitivity to market risk, and followed descriptive method of data analysis. The data were collected from secondary sources, such as, from 2010 to 2014 annual reports of each bank. The researcher then analyzed the five year financial statements of those banks, using respective performance indicator ratios per each CAMELS component and the researcher compared the banks each other and assessed their trend throughout the five year periods. The study found out that, there was inconsistency in the performance of those banks over the five years and among themselves. The researcher forwarded recommendations for those banks to design appropriate credit policy; to maintain good quality of their asset; to use their maximum effort to increase their capital; to build appropriate mix of assets and liabilities; and to design appropriate policy for composition of liquid and illiquid assets for maintaining good liquidity position. In addition, the researcher recommended the regulatory bodies such as National Bank of Ethiopia should set standardized bank performance indicator ratios along with their benchmarks to facilitate the evaluation of banks performance.