The main objective of the paper is to analyze the impact of bank specific and macro-economic factors on the profitability of selected Ethiopian private commercial banks over the period of 2005 to 2014.
To meet the objective, both descriptive and random effect panel econometrics method of data analysis has been employed. The study uses both return on asset (ROA) and return on equity (ROE) as a measurement for banks profitability. Private Banks profit after tax gets increasing year after year and their ROA is found to be three percent on average. The deposit share of private commercial banks reached above 30 percent in 2014, while it was only 10 percent in 2000.
The panel econometrics result shows that, the variable bank size and GDP growth rate has a positive and significant impact on private commercial banks ROA and ROE. While, interest rate spread has a negative and significant impact. The variable Loan to deposit ratio has negative and significant impact on banks ROA while, it has no effect on their ROE. Inflation also an important variable in explaining ROA at 10% significant level but, it has no effect on ROE. The other important variable in explaining ROE is loan concentration index it has positive and significant impact on banks ROE. But, it does not significantly explain ROA. As a recommendation the significant and positive impact of Bank size can be taken as a good signal for commercial banks to merge and to have scale advantage. The significant impact of macro-economic variables in explaining banks profit is an indicator to designed policies that promote sustainable output growth and controlling inflation to have stable banking sector.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Statement of the Problem
- Scope and Objective of the Study
- Hypothesis of the Study
- Organization of the Paper
- Literature Review
- Traditional Measures of Performance
- Economic Measures of Performance
- Market-Based Measures of Performance
- Determinants of Bank Profitability
- Macroeconomic Determinants
- Determinants Specific to the Bank
- Research Methodology
- Source and Type of Data
- Method of Data Analysis
- Model Specification
- Discussion and Analysis
- Descriptive Data Analysis
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to examine the influence of bank-specific and macroeconomic factors on the profitability of selected Ethiopian private commercial banks between 2005 and 2014. The study utilizes both return on asset (ROA) and return on equity (ROE) to measure profitability.
- Impact of bank-specific factors on profitability, including bank size, market concentration, credit risk, and bank branch network.
- Effect of macroeconomic variables on profitability, such as GDP growth rate, GDP per capita, and inflation.
- Analysis of the relationship between profitability and both internal and external factors.
- Exploration of the impact of profitability on financial stability and the banking sector.
- Potential policy implications based on the study's findings.
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter introduces the research topic, outlining the problem of varying profitability among private commercial banks in Ethiopia. It also defines the study's objectives, scope, and hypothesis.
- Literature Review: This chapter reviews existing research on bank profitability, covering traditional, economic, and market-based performance measures. It explores internal and external factors influencing profitability, focusing on macroeconomic determinants and bank-specific variables.
- Research Methodology: This chapter details the data sources, analysis methods, and model specification used in the study. It clarifies the selection of variables and explains the application of descriptive and panel econometrics techniques.
- Discussion and Analysis: This chapter presents descriptive data analysis focusing on the trend of profitability in the Ethiopian private banking sector, providing insights into the evolution of deposit shares and market dynamics.
Schlüsselwörter (Keywords)
The study focuses on profitability, its determinants, and their impact on Ethiopian private commercial banks. Key themes include bank-specific factors, macroeconomic variables, ROA, ROE, panel econometrics, and financial stability. The research examines the influence of factors such as bank size, credit risk, market concentration, GDP growth, inflation, and policy implications.
- Citation du texte
- Moges Endalamaw Yigermal (Auteur), 2017, The Determinants of Private Commercial Banks Profitability. In the Case of Selected Ethiopian Private Banks, Munich, GRIN Verlag, https://www.grin.com/document/414626
