Factors affecting bank profitability of commercial bank of Ethiopia: An econometric analysis

The purpose of this study is to investigate determinants of banks profitability in CBE by using time series data of CBE from year 1983 to 2012. The study used quantitative research approach and secondary financial data are analyzed by using multiple linear regression models for the bank profitability measures: Return on Asset (ROA). OLS method was applied to investigate the impact of bank size, managerial efficiency, liquidity, credit risk, real GDP growth rate, and annual inflation rate on major bank profitability measure i.e., (ROA) separately. The empirical results shows that bank specific factors; bank size, managerial efficiency, credit risk and macro-economic factors; level of GDP and annual inflation rate have a strong influence on the profitability of banks. The empirical study shows that, all explanatory variables in this study have negative effect on the profitability measure except GDP and inflation rate. In addition to this, without liquidity all explanatory variables are statistically significant. Finally, the researcher have made conclusions and recommendations based on the analyzed results.