Financial Performance Analysis of Private Commercial Banks of Ethiopia

Adane Wudu Abebaw

doi:10.7176/rjfa/11-13-01

Abstract

The study aimed to examine the performance of private commercial banks of Ethiopia with liquidity, profitability, risk & solvency and efficiency ratio for the period 2014-2017 . To meet the objective of the study, secondary sources of data, such as annual reports of the bank have been utilized After collecting the necessary data, appropriate financial ratios and descriptive statistical techniques were employed for analyzing, interpreting and giving a condensed picture of the collected data. According to the overall performance of financial ratio analysis Addis International Bank stood on the top followed by Birhan International Bank. Whereas Bank of Abyssinia stood the least. In general, Addis international bank has better average performance in order to minimize the degree of financial risk, utilizing of asset to generate income, meeting its shortterm obligation and performing interims of profit, but Bank of Abyssinia has less profit per birr, utilizing of asset, margin of safety on average. AIB, BOA and UB are weak on the average rank of financial factors. Therefore, the managers of the banks advised to share experience from other high achievable banks such as ADIB, BIB on the average ranks of financial factors profitability, liquidity, efficiency, risk and solvency. In addition they make more advertisement for customers by reward increase interest for the deposit of their customers and give special training for their employees how to use asset, how to attract customers, how to motivate the investors that use their bank Keywords: Key words: Financial Performance, liquidity ratio, profitability ratio, efficiency ratio, financial statement DOI: 10.7176/RJFA/11-13-01 Publication date: July 31 st 2020

Highlights

1.1 Background of the study Financial sectors play crucial role in economic growth & industrialization via channeling funds from surplus unit-the depositors to the deficit units, the borrowers
The banking sector is the backbone of economy in Ethiopia .As the banks are interconnected with each other for the payment and other functions, the a failure of a single bank affects its shareholders and depositors rather it affects all over the bank and it creates an economic turmoil situation which is regarded as a disaster for the economy that was viewed in recent global recession that occurred as the result of bank failure at the inception (Al Karim and Alam, 2013).So, banks are exposed to many types of risk that has caused in different situations which result in different level of risks
The study use financial data & analyze & evaluate Ethiopian private commercial banks performance on financial ratio analysis such as liquidity ratio, profitability ratio, efficiency ratio & risk & solvency which measured by total loan to total deposit ratio, Net profit to total asset ratio total Revenue to total asset ratio & debt to Equity ratio respectively

Summary

Introduction

1.1 Background of the study Financial sectors play crucial role in economic growth & industrialization via channeling funds from surplus unit-the depositors to the deficit units, the borrowers. The study use financial data & analyze & evaluate Ethiopian private commercial banks performance on financial ratio analysis such as liquidity ratio, profitability ratio, efficiency ratio & risk & solvency which measured by total loan to total deposit ratio, Net profit to total asset ratio total Revenue to total asset ratio & debt to Equity ratio respectively. In order to include the newly established Ethiopian private commercial banks, the time period for the study bound 4 consecutive years from 2014-2017G.C The financial performance of banks was measured by using four factors i.e. profitability, risk & solvency liquidity & efficiency ratio. 3. Research Methodology 3.1 Research design The study is descriptive type of research design to describe, measure, compares and classify the financial performance of Ethiopian private commercial banks in terms of liquidity ratio, profitability ratio, Risk & solvency ratio, Efficiency ratio. Risk & solvency measured by the amount of total debt affirm used to financial its total assets

Liquidity ratio Measured by ratio of total loans to total deposit

Liquidity ratio analysis

Efficiency ratio analysis

Findings

Overall average performance of Ethiopian private banks