BANK SPECIFIC DETERMINANTS OF PROFITABILITY OF COMMERCIAL BANKS (THE CASE OF COMMERCIAL BANK OF ETHIOPIA)

Abstract

To achieve financial stability and growth, it is important to identify the determinants of performance of the banking sector. This paper aimed at investigating the impact of the internal determinants of profitability of commercial banks (the case of commercial bank of Ethiopia) over the period 1990-2014. This paper used ordinary least squares method to estimate the model. This paper used return on assets (ROA) as a measure of profitability. The findings revealed that bank asset, interest income, branch expansion and noninterest expense do significantly influence profitability of the bank. The result suggests that the management set strategies that encourage commercial banks to lower assets increase, raise interest income and increase number of branches as this will increase profit of the banks. Another implication of the study is that commercial banks need to invest in technologies and management skills which minimize costs of operations as this will impact positively on their growth and survival.