Abstract
This study examines the Analysis on financial performance determinants: A study on selected commercial Banks in Ethiopia. Among the total of 17 public and private sector banks by using Purposive sampling technique 9 banks have been selected for the study. Quantitative research approach was adopted by using secondary data by using panel data of banks over a period of ten years (2006-2015). The fixed effect model was chosen rather than random effect model based on the hausman specification test result. In order to realize the objectives of the study multiple regression models was employed. Banks specific factors considered CAMEL approach and the key macroeconomic factors such as gross domestic product, inflation rate and foreign exchange rate were also included to analyze the banks financial performance in terms of ROA and ROE, Accordingly, the result revealed that Capital adequacy has positive and significant impact on bank financial performance of return on asset, and Earning ability and liquidity management has negatively and significant impact on bank financial performance of return on equity, On the other hand, variables such as Gross Domestic Variable has positively impact on both return on asset (ROA) and return on equity (ROE). Keywords : Financial performance, Banks. DOI : 10.7176/RJFA/10-9-02 Publication date :May 31 st 2019
Highlights
Commercial banks play a vital role in the economic resource allocation of countries
Based on table 12,in relation to financial performance indicators measured by ROA,Management efficiency,capital adequacy,Inflation rate and gross domestic product are positively impact on banks financial performance measured by return on asset(ROA) but, asset quality,earning ability, liquidity management and Foreign exchange rate are negativelyimpact on the banks financial performance measured by return on asset (ROA)of Ethiopian commercial banks
TheEarning ability, Liquidity management,and foreign exchange rate have significant impact on financial performance measured by return on equity (ROE).where as capital adequacy, assetquality, gross domestic product and Management efficiencyhave statically insignificant impact on banks financial performance measured by return on equity (ROE), Earning ability and Liquidity management areboth have a p-value of 0.000 each andarestaticallysignificant at 1% level respectively,and foreign exchange rate have the p-value of 0.043and is significantat 5% level of significant
Summary
Commercial banks play a vital role in the economic resource allocation of countries. They channel funds from depositors to investors continuously. Ø To study impact of Gross Domestic Product on the financial performance of selected commercial banks of Ethiopia. Ø To study impact of Foreign Exchange Rate on the financial performance of selected commercial banks of Ethiopia. Hypotheses Hypothesis 1: There is positive and significant relationship between capital adequacy and financial performance of commercial banks. Hypothesis 2: There is positive and significant relationship between asset quality and financial performance of commercial banks. Hypothesis 3: There is positive and significant relationship between management efficiency and banks financial performance. Hypothesis 5: There is positive and significant relationship between liquidity management and financial performance of commercial banks. Hypothesis 6: There is positive and significant relationship between Gross domestic products and financial performance of commercial banks. Hypothesis 8: There is negative and significant effect between foreign exchange rate and financial performance of commercial banks.
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