Determinants Of Profitablity Of Commercial Banks In Ethiopia: A Study On Internal Factors

Abstract

The purpose of this study was to investigate determinants of commercial banks profitability in Ethiopia a study on internal factor by using panel data of thirteen commercial banks from year 2010 to2018. The study employed an explanatory type of research and secondary financial data were used. On this study Return on Asset (ROA) has been used as a proxy variable for the dependent variable. Based on the result of Haussmann specification test the study used fixed effect model. The fixed effect regression model was applied to investigate the effect of bank size, capital adequacy, liquidity risk, operation efficiency, debt management, funding cost, and loan to asset ratio on profitability. The major findings of the study show that, operation efficiency, capital adequacy and bank size have statistically significant and positive relationship with banks’ profitability. However, the relationship for liquidity risk, debt management, funding cost, and loan to asset ratio were found to be statistically insignificant. The study suggests focusing and redesigns the firms together with significant key internal drivers of profitability of commercials banks in Ethiopia.