Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks

Yalemselam Worku Bogale

doi:doi:10.11648/j.jim.20190801.12

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Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks

Yalemselam Worku Bogale

Published in Journal of Investment and Management (Volume 8, Issue 1)

Received: 24 December 2018 Accepted: 20 January 2019 Published: 31 January 2019

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Abstract

The objective of this study was investigating factors affecting the profitability of private commercial banks in Ethiopia, covering ten years period from 2008 to 2017, using unbalanced panel data from fourteen Ethiopian private commercial banks. In this study, survey was used as a method of a research design, which allows collecting quantitative data that was analyzed quantitatively using STATA 13 software. The variables covered under this study were both bank specific factors (capital adequacy, bank size, liquidity risk, credit risk, and operation efficiency) and macroeconomic factors (real GDP growth rate, inflation, foreign exchange rate, and lending interest rate). The fixed effect regression output revealed that from bank specific variables; capital adequacy and bank size have significant positive effect on profitability. Besides, operation efficiency has a negative significant effect on profitability, but liquidity risk and credit risk were found not powerful variables in the determination of banks profitability. From macroeconomic variables; foreign exchange rate and lending interest rate were found to have significant (though at 10% level of significance) negative effect on Ethiopian private commercial banks profitability. Conversely, real GDP growth rate and inflation rate were found statistically insignificant. Generally, in this study bank specific factors have more significant effect than macroeconomic factors. So, private commercial banks in Ethiopia were suggested to increase their stockholders equity, asset size and implement an effective and efficient expense management practice in order to boost their profitability.

Published in	Journal of Investment and Management (Volume 8, Issue 1)
DOI	10.11648/j.jim.20190801.12
Page(s)	8-15
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2019. Published by Science Publishing Group

Keywords

Bank Specific and Macroeconomic Factors, Profitability, Private Commercial Banks, Ethiopia

References

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APA Style

Yalemselam Worku Bogale. (2019). Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks. Journal of Investment and Management, 8(1), 8-15. https://doi.org/10.11648/j.jim.20190801.12

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ACS Style

Yalemselam Worku Bogale. Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks. J. Invest. Manag. 2019, 8(1), 8-15. doi: 10.11648/j.jim.20190801.12

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AMA Style

Yalemselam Worku Bogale. Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks. J Invest Manag. 2019;8(1):8-15. doi: 10.11648/j.jim.20190801.12

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@article{10.11648/j.jim.20190801.12,
  author = {Yalemselam Worku Bogale},
  title = {Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks},
  journal = {Journal of Investment and Management},
  volume = {8},
  number = {1},
  pages = {8-15},
  doi = {10.11648/j.jim.20190801.12},
  url = {https://doi.org/10.11648/j.jim.20190801.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20190801.12},
  abstract = {The objective of this study was investigating factors affecting the profitability of private commercial banks in Ethiopia, covering ten years period from 2008 to 2017, using unbalanced panel data from fourteen Ethiopian private commercial banks. In this study, survey was used as a method of a research design, which allows collecting quantitative data that was analyzed quantitatively using STATA 13 software. The variables covered under this study were both bank specific factors (capital adequacy, bank size, liquidity risk, credit risk, and operation efficiency) and macroeconomic factors (real GDP growth rate, inflation, foreign exchange rate, and lending interest rate). The fixed effect regression output revealed that from bank specific variables; capital adequacy and bank size have significant positive effect on profitability. Besides, operation efficiency has a negative significant effect on profitability, but liquidity risk and credit risk were found not powerful variables in the determination of banks profitability. From macroeconomic variables; foreign exchange rate and lending interest rate were found to have significant (though at 10% level of significance) negative effect on Ethiopian private commercial banks profitability. Conversely, real GDP growth rate and inflation rate were found statistically insignificant. Generally, in this study bank specific factors have more significant effect than macroeconomic factors. So, private commercial banks in Ethiopia were suggested to increase their stockholders equity, asset size and implement an effective and efficient expense management practice in order to boost their profitability.},
 year = {2019}
}

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TY  - JOUR
T1  - Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks
AU  - Yalemselam Worku Bogale
Y1  - 2019/01/31
PY  - 2019
N1  - https://doi.org/10.11648/j.jim.20190801.12
DO  - 10.11648/j.jim.20190801.12
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 8
EP  - 15
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20190801.12
AB  - The objective of this study was investigating factors affecting the profitability of private commercial banks in Ethiopia, covering ten years period from 2008 to 2017, using unbalanced panel data from fourteen Ethiopian private commercial banks. In this study, survey was used as a method of a research design, which allows collecting quantitative data that was analyzed quantitatively using STATA 13 software. The variables covered under this study were both bank specific factors (capital adequacy, bank size, liquidity risk, credit risk, and operation efficiency) and macroeconomic factors (real GDP growth rate, inflation, foreign exchange rate, and lending interest rate). The fixed effect regression output revealed that from bank specific variables; capital adequacy and bank size have significant positive effect on profitability. Besides, operation efficiency has a negative significant effect on profitability, but liquidity risk and credit risk were found not powerful variables in the determination of banks profitability. From macroeconomic variables; foreign exchange rate and lending interest rate were found to have significant (though at 10% level of significance) negative effect on Ethiopian private commercial banks profitability. Conversely, real GDP growth rate and inflation rate were found statistically insignificant. Generally, in this study bank specific factors have more significant effect than macroeconomic factors. So, private commercial banks in Ethiopia were suggested to increase their stockholders equity, asset size and implement an effective and efficient expense management practice in order to boost their profitability.
VL  - 8
IS  - 1
ER  -

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Author Information

Yalemselam Worku Bogale

Department of Accounting and Finance, Debre Berhan University, Debre Berhan, Ethiopia

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APA Style

Yalemselam Worku Bogale. (2019). Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks. Journal of Investment and Management, 8(1), 8-15. https://doi.org/10.11648/j.jim.20190801.12

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ACS Style

Yalemselam Worku Bogale. Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks. J. Invest. Manag. 2019, 8(1), 8-15. doi: 10.11648/j.jim.20190801.12

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AMA Style

Yalemselam Worku Bogale. Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks. J Invest Manag. 2019;8(1):8-15. doi: 10.11648/j.jim.20190801.12

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@article{10.11648/j.jim.20190801.12,
  author = {Yalemselam Worku Bogale},
  title = {Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks},
  journal = {Journal of Investment and Management},
  volume = {8},
  number = {1},
  pages = {8-15},
  doi = {10.11648/j.jim.20190801.12},
  url = {https://doi.org/10.11648/j.jim.20190801.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20190801.12},
  abstract = {The objective of this study was investigating factors affecting the profitability of private commercial banks in Ethiopia, covering ten years period from 2008 to 2017, using unbalanced panel data from fourteen Ethiopian private commercial banks. In this study, survey was used as a method of a research design, which allows collecting quantitative data that was analyzed quantitatively using STATA 13 software. The variables covered under this study were both bank specific factors (capital adequacy, bank size, liquidity risk, credit risk, and operation efficiency) and macroeconomic factors (real GDP growth rate, inflation, foreign exchange rate, and lending interest rate). The fixed effect regression output revealed that from bank specific variables; capital adequacy and bank size have significant positive effect on profitability. Besides, operation efficiency has a negative significant effect on profitability, but liquidity risk and credit risk were found not powerful variables in the determination of banks profitability. From macroeconomic variables; foreign exchange rate and lending interest rate were found to have significant (though at 10% level of significance) negative effect on Ethiopian private commercial banks profitability. Conversely, real GDP growth rate and inflation rate were found statistically insignificant. Generally, in this study bank specific factors have more significant effect than macroeconomic factors. So, private commercial banks in Ethiopia were suggested to increase their stockholders equity, asset size and implement an effective and efficient expense management practice in order to boost their profitability.},
 year = {2019}
}

Copy | Download

TY  - JOUR
T1  - Factors Affecting Profitability of Banks: Empirical Evidence from Ethiopian Private Commercial Banks
AU  - Yalemselam Worku Bogale
Y1  - 2019/01/31
PY  - 2019
N1  - https://doi.org/10.11648/j.jim.20190801.12
DO  - 10.11648/j.jim.20190801.12
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 8
EP  - 15
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20190801.12
AB  - The objective of this study was investigating factors affecting the profitability of private commercial banks in Ethiopia, covering ten years period from 2008 to 2017, using unbalanced panel data from fourteen Ethiopian private commercial banks. In this study, survey was used as a method of a research design, which allows collecting quantitative data that was analyzed quantitatively using STATA 13 software. The variables covered under this study were both bank specific factors (capital adequacy, bank size, liquidity risk, credit risk, and operation efficiency) and macroeconomic factors (real GDP growth rate, inflation, foreign exchange rate, and lending interest rate). The fixed effect regression output revealed that from bank specific variables; capital adequacy and bank size have significant positive effect on profitability. Besides, operation efficiency has a negative significant effect on profitability, but liquidity risk and credit risk were found not powerful variables in the determination of banks profitability. From macroeconomic variables; foreign exchange rate and lending interest rate were found to have significant (though at 10% level of significance) negative effect on Ethiopian private commercial banks profitability. Conversely, real GDP growth rate and inflation rate were found statistically insignificant. Generally, in this study bank specific factors have more significant effect than macroeconomic factors. So, private commercial banks in Ethiopia were suggested to increase their stockholders equity, asset size and implement an effective and efficient expense management practice in order to boost their profitability.
VL  - 8
IS  - 1
ER  -

Copy | Download