The Effect of Asset- Liability Management on Profitability of Private Commercial Banks in Ethiopia

Abstract

This research was conducted to investigate the effect of asset liability management on profitability of private commercial banks in Ethiopia by using panel data of seven private commercial banks in Ethiopia from year 2005 to 2017 G.C.The study used audited annual financial report of selected banks and analyzed by using multiple regression models moreover, net interest income, was to measure profitability.Fixed effect regression model was applied to investigate the effects of Asset Liability factors on banks, by employing statistical Cost Accounting model for the sampled banks. To conduct the study quantitative research method was employed and explanatory research design was used in trying to establish the causal effect relationship between profitability and asset liability management variables The study utilized panel data analysis methodology in attest conclusions about the effect of the explanatory variables on the dependent variable. The study revealed that loan and advances, deposit in foreign banks, and investment in security had a statistically significant and positive except loan and advance effect on net interest income, whiledemand deposit had a statisticallysignificant positive effect on net interest income. Whereas saving deposit and fixed deposit from the liability part, don’t have statistically significant positive effect on profitability as measured by net interest income.Therefore, Bank managers are advised to give due attention to the statically significant positive variables (I.e, deposit in foreign bank, investment in security) to Improve profitability. Keywords:- Profitability, Private commercialbanks, asset liability management, Ethiopia DOI: 10.7176/RJFA/11-9-04 Publication date: May 31 st 2020