THE EFFECT OF ASSET DIVERSIFICATION ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS OF ETHIOPIA

Asset diversification is plays a significant role to improving the level of banks profit. The aim of<br> the study to examine the effect asset diversification has influence the financial performance of<br> commercial banks in Ethiopia. In order to achieve aim of this study the researcher used<br> quantitative research approach by adopting purposive sampling methods and explanatory type<br> of research design. The study used secondary data which were collected from financial<br> statements of sampled commercial bank over the periods of 2014/2015 to 2023/2024. Both<br> descriptive and inferential statistics as well as random effect regression model were applied to<br> analyze the panel data. The model was used to examine the relationship between financial asset,<br> cash and cash equivalent, equity investment, non performing financial asset, fixed asset, loan<br> and advances and intangible asset with bank performance indicator that is return on asset. The<br> study used Stata15 software for data analysis. The result reveals that the regression model<br> significantly predicts the outcome variable with a p-value of 0.000. The result of Random effects<br> model reveals that cash and cash equivalent, loan and advances, equity investment, and<br> intangible asset had positive and statistically significant effect on the financial performance<br> (profitability) of commercial banks. Whereas, financial asset, fixed asset and non-performing<br> asset had negative and statistically significant effect on the financial performance (profitability)<br> of commercial banks in Ethiopia. Based on results the researcher recommended further<br> diversification of bank product their assets to loan and advances, cash and cash equivalent and equity investment for better profitability.2