Determinants of Commercial Banks Profitability: An Empirical Study on Private Commercial Banks in Ethiopia

Abstract

Both internal and external determinants of Bank profitability affect the profitability of Private Commercial Banks in Ethiopia. This study identifies bank specific, industry specific and macroeconomic factors that determine the profitability of Ethiopian private commercial banks. Six private commercial banks have been the subject for the study ranging from 2004/2005 to 2014/2015. The bank's Audited financial statement, National Bank of Ethiopia and Ministry of finance and Economic Cooperation has been the main source for the study and the panel analysis has been carried out to obtain the result for this empirical study. The study used ROA as a Dependent variable and capital adequacy, operational efficiency, liquidity, income diversification, concentration, GDP, inflation and money supply as independent variables. The empirical results showed that capital, operational efficiency, income diversification, concentration and money supply have significant relationship with profitability of Ethiopian private commercial banks. However the result shows insignificant relationship between profitability of Ethiopian private commercial banks with liquidity, GDP and inflation. Keywords: Profitability, Private Commercial Banks