DETERMINANTS OF PROFITABILITY IN ETHIOPIAN YOUNG PRIVATE COMMERCIAL BANKS

Abstract

The purpose of this study is to investigate determinants of profitability of young private commercial banks by using balanced panel data of seven young private commercial banks from year 2011 to 2017. The study used quantitative research approach and secondary data gathered from the banks audited financial statement and NBE. It is also applied panel data regression to investigate the effect of liquidity, operational efficiency, foreign currency generation, bank branch and inflation on major profitability indicator, return on asset (ROA). Different diagnostic tests were tested to know whether the model is valid or not, having the model is valid the regression analysis and hypothesis testing is performed using STATA 13 econometrics software. The findings of the study showed that liquidity, foreign currency generation, bank branch and inflation have statistically significant and positive relationship with Ethiopian young private commercial banks of profitability. On the other hand, operational efficiency has negative and statistically significant relationship with banks’ profitability. Among others, the study suggests that Therefore, the management’s banks have to use this strategy to become more accessible to the existing and new customers to mobilize large amount of deposit in the prevailing market in so doing to harvest the utmost profit.