DETERMINANTS OF PRIVATE COMMERCIAL BANKS PROFITABILTY IN ETHIOPIA

Abstract This study examined the determinants of private commercial banks profitability. To achieve the overall objective of the study data were collected from annual report of the selected nine private commercial banks. To determine the sample commercial banks the study used purposive sampling techniques accordingly; from 28 total private commercial banks, nine of them were selected considering their experience and asset size .To analysis the data both descriptive and explanatory (cause – effect) data analysis method were applied. Accordingly the study compares and contrast profitability trend of each of the studied banks and also implied the general environment of all banks profitability trends using percentage ratio. Finally, the study has tested how independent variables determine profitability of the studied banks using inferential statics such as, correlation and regression analysis. The study used ROA as a Dependent variable and liquidity, capital adequacy, cost income ratio, Non-performing loan, bank size, loan and advance, net interest margin, GDP and inflation as independent variables. Accordingly the finding implied that, Capital adequacy, bank size, loan and advance, NIM, and GDP have positive significant relationship with profitability of Ethiopian private commercial banks. While, liquidity NPL, inflation and cost income ratio shows negative significant relationship with profitability of Ethiopian private commercial banks. Based on the major finding the study recommended some important recommendations such as, in order to maximize profitability of bank, Ethiopian commercial banks, it is advisable to lower the liquidity ratio to increase the income from loan. The banks could raise fee based services through incentives mechanisms such as, preparing lottery schemes for money transfer services and international banking operations.