Determinants of Financial Performance of Commercial Banks: Panel Data Evidence from Ethiopia

This study was conducted to analyze the determinants of financial performance of commercial banks in Ethiopia. All commercial banks which have started their operation before 2005 are selected for the study. From the total of 18 commercial banks in Ethiopia, 9 banks: 2 from the public and 7 from the private sector were selected which are operated for ten or more years in the industry. Both bank specific as well as industry specific determinants of financial performance of commercial banks were considered as the independent variables; whereas, the return on asset has been taken as dependent variable. A panel data of 11 years from the annual audited financial statements was taken. Data analysis has been done using descriptive statistics, correlation analysis and multiple linear regression models. All bank specific variables: capital adequacy ratio, asset quality ratio, management efficiency ratio, earnings ratio and liquidity ratio are statistically significant determinant of Ethiopian commercial banks financial performance. Whereas, industry growth rate was found statistically insignificant, this implies that its influence on Ethiopian commercial banks’ financial performance is less during the study period (2005 to 2015).