DETERMINANTS OF PRIVATE COMMERCIAL BANKS PROFIT IN ETHIOPIA

Abstract

The purpose of this study is to examine profit determinants of private commercial banks in Ethiopia by using time series data of five private commercial banks from year 2005 to 2016. The study used quantitative research approach and secondary financial data are analyzed by using multiple linear regressions models for the two bank profitability measures; Return on Asset (ROA) and Return on Equity (ROE). Multiple linear regression model was applied to investigate the impact of national bank bill(measured as percentage of their profit), asset quality(measured by provision held for bad debts and loss), cost if branch expansion( measured by rent expense, yearly interest paid on deposit (measured by interest’s expense) and advertising expense on major bank profitability measures i.e., (ROA), and (ROE) separately. The empirical results show that bank specific factors; asset quality, national bank bill, and interest expense have a strong influence on the profitability of private commercial banks in Ethiopia. Therefore, concerned bodies of private commercial banks should strive to strengthen the identified significant factors and government bodies should also see the adverse effect of tight polices imposed on the existing private banks as well as for the new entrants.