EFFECT OF TRADE FINANCE OPERATION ON FINANCIAL PERFORMANCE OF COMMERCIAL BANK OF ETHIOPIA

Abstract

The purpose of this study was to determine the impact of trade finance operation on the financial performance of Commercial Bank of Ethiopia as representative of the commercial banking industry. Its objectives were to describe the trade finance revenue streams of the Bank and establish the relationship between the dependent variable i.e. return on asset and the independent variables,Fees and commission, interest income, Foreign exchange trading income and capital adequacy as moderating variable. Descriptive and explanatory research designs were used and the target population comprised on Commercial Bank of Ethiopia. Data was collected from reports of the CBE spans from 2006 to 2021 for sixteen years of the Bank’s operations. The data was analyzed using the Statistical Package for Social Sciences (SPSS) version22. Descriptive and inferential methods helped incoming up with statistical results from the quantitative data. The findings revealed that interest income, non-interest income and foreign exchange trading income had been increasing over the years although there were slight fluctuations. The total Capital and the total assets had also been increasing over the years although there have been slight fluctuations. There was a strong, positive and statistically significant relationship between fees and commission, interest income, foreign exchange trading income with return on asset of Commercial Bank of Ethiopia. It was concluded that income sources of trade finance, that is, foreign exchange gain were key in enhancing the financial performance of CBE. The study recommends that trade finance operation shall give further attention to SME and micro customer to further leverage the performance of the Bank.