Determinants of Private Commercial Banks Profitability during GTP I Period

Abstract

The major objective of the study is to find out the major determinants of private commercial banks profitability in GTP implementation period i.e. 2011 to 2015. The study classifies the explanatory variables in to bank specific/internal factors, Sector specific and macroeconomic variable to empirically test the determinants of private commercial banks profitability. The study has taken one of the top policy issues; the obligation to purchase government securities, and analyzed its impact on profitability measure, ROA. It has used panel data from 2011 to 2015 of thirteen private commercial banks which were at least operating in the industry for the last five years with a total of 65 observations and all relevant data were collected using a structured documentary review of the annual reports of the sample banks and national bank of Ethiopia. The collected data were analyzed using Eviews-8 software and a panel fixed effect model regression was adopted to capture the effect of each explanatory variable on profitability of banks represented by ROA. The study used 12 explanatory variables namely, bank size, intermediation, expense management, funding cost, credit risk, liquidity, NBE bill purchased, market share, market development, real GDP growth and inflation rate. The study found that, bank size, expense management, NBE bill purchase has a positive significant impact on commercial banks profitability. Furthermore credit risk, funding cost and market share affect commercial banks profitability negatively