Structure Conduct and Performance Analaysis in Ethiopian Banking Industry

Abstract

The General objective of the study was to analyze the Structure, Conduct and Performance of Banking Sector in Ethiopia by using balanced panel data for 10 years (2009-2018) annual audited financial statements of 12 banks and macroeconomic data. The Random effect model was used for the Return on Asset (ROA) model, and fixed effect for Return on Equity (ROE) based on the Hausman model specification test.Market concentration measure reveled that there was more concentration ratio in terms of asset, deposit and loan and advance in Ethiopia banking sector..The study result revealed that bank specific factors such as Bank size, Capital adequacy, Loan to Deposit Ratio, Income Diversification and growth deposit are statistically positively significant in determining profitability of banks. The cost income ratio is negatively affect bank profitability. From industry specific factor positive significant associations between Concentration (HHI) and Banking sector Development with profitability. The positive sign of concentration characterized the nature of Ethiopian banking sector may need for more competition and more entry into the banking market and confirm the structure–conduct–performance hypothesis which stipulates that higher market power submit monopoly profits. In general, the overall empirical findings provide evidence that the profitability of banks are mainly dominated by bank-specific factors which are on the hands of the management of the banks. So, the study suggests to the banks’ managers and policy makers to give high concern on the internal factors of profitability and set direction to manage the most dominant factors of performance. Keywords: Structure, Conduct, Bank Performance, Market Concentration, Profitability DOI: 10.7176/RJFA/13-7-01 Publication date: April 30 th 2022