An Empirical Study on the Determinants of Financial Performance in Ethiopian Commercial Banks

This study investigates the bank-specific, industry-specific, and macroeconomic determinants of financial performance in Ethiopian commercial banks. It uses panel data from nine out of seventeen commercial banks operating in Ethiopia over the period 2008–2022. A quantitative research approach was employed using secondary data. Financial performance was measured using Return on Assets (ROA) and Return on Equity (ROE) as dependent variables. Based on the Hausman test, the random effects model was used for ROA and the fixed effects model for ROE. The explanatory variables include seven bank-specific factors (capital adequacy, operational efficiency, liquidity risk, income diversification, loan-to-deposit ratio, branch number, and credit risk), one industry-specific factor (size of the banking system), and two macroeconomic factors (real GDP growth rate and saving interest rate). The findings reveal that capital adequacy, operational efficiency, income diversification, loan-to-deposit ratio, branch number, credit risk, and size of the banking system significantly influence financial performance. Accordingly, bank management should focus on enhancing these key determinants to improve financial outcomes.