DETERMINANTS OF COMMERCIAL BANKS’ FINANCIAL PERFORMANCE IN ETHIOPIA

Abstract

This study examines the determinants of financial performance of commercial banks in Ethiopia by using panel data of fifteen sample commercial banks out of eighteen commercial banks operated in Ethiopia over the period 2012-2016. Since the data is secondary in nature, the quantitative approach to research was used. Under this study, both internal and external factors were included. The internal factors used in this study include capital adequacy, Asset quality, Earning ability, liquidity management and Bank size whereas, the external factor is foreign exchange rate. Moreover, ROA and NIM were used to measure the financial performance. Hence based on the result random effect model was adopted. Based on the regression result; asset quality, earning ability and bank size have a significant influence on the financial performance of Ethiopian commercial banks measured by return on asset , return on equity and net interest margin. Thus, management bodies of commercial bank should strive to strengthen the identified significant factors