The Effect of Bank Size and Ownership on Financial Performance of Commercial Banks In Ethiopia

Banks play key role in the development of nations. They are the means for channelling saving and investment. But for the banks to provide such function, they must be profitable and got public trust. Hence, factors that affect bank performances are researched by a number of scholars. Among such factors, bank ownership and size are few to mention. In case of Ethiopia, it is the history two decades that private bank participated in the industry and whether privatization of banks improves performance is a less researched area. This research therefore, is devoted to assess the effect of size and ownership on financial performance of commercial banks in Ethiopia. Eight commercial banks of which, two state and six privately owned were purposefully selected from total of 19 banks based on the criteria set and from which the required data was believed to be obtained. Pearson correlation, independent sample t-test and multivariate regression of panel data analysis technique were used to analyze the secondary data of the respective banks collected from national bank of Ethiopia for fourteen years, 2000 to 2013. Regression output reveals that, while ownership has no impact on Return on Equity (ROE) and Net Interest Margin (NIM), bank size measured by logarithm of total assets has significant positive impact on Return on Assets (ROA), ROE and NIM of commercial bank in Ethiopia. The t-test reveals that, though state banks own larger assets than private banks, the later generate higher profit on their assets than that of state owned banks. But, there is no significant difference in ROE and NIM for both private and state owned banks in Ethiopia.