DETERMINANTS OF PROFITABILITY OF COMMERCIAL BANKS IN ETHIOPIA (THE CASE OF SOME SELECTED BANKS)

Abstract

The study examines the determinants of profitability of commercial banks in Ethiopia by using panel data of seven sample commercial banks out of seventeen commercial banks currently operated in Ethiopia over the period 2000-2014 since the data is secondary in nature the quantitative research approach was used besides , the fixed effect model was used. The factor used in this study includes bank size, capital adequacy, interest income, non-interest income. Interest expense and non-interest expense and return on asset (ROA) were used to measure the bank’s profitability. The finding of the study shows that bank size, capital adequacy, interest income and non-interest income have statistically significant and positive relationship with profitability. On the other hand Interest expense and non-interest expense has negative and statistically significant relationship with banks’ profitability. The study suggests management bodies of commercial bank should strive to strengthen the identified significant factor banks size, capital adequacy non-interest income and interest income as this will enhance the performance of the banks. Moreover, commercial banks need to invest in recent technologies and management skills which minimize operational expense as this will affect positively on their performance.