Determinants of profitability: A comparative study in private commercial banks between Dashen and Awash bank.

This paper investigates the determinants of awash and dashen bank profitability in the light of bank specific variables and macroeconomic influences. The purpose of the study was to investigate the internal and macroeconomic determinants of awash and dashen bank profitability using a time series data. The study used a quantitative research approach and secondary financial data for 16 years covering from year 2004 to 2019. Analysis was done by the use of Vector autoregressive model which is a multivariate time series model. The secondary time series data used in the course of this study were stationary which approved by dickey fuller test, one optimal lag was chosen using Lagrange multiplier. Vector autoregressive model stability, Autocorrelation and normality test were also carried out for the Vector autoregressive model and the test results were satisfactory to run the model. Since then the Vector autoregressive model analysis was conducted by statistical software called STATA 13. The finding shows that bank size, number of branches, capital adequacy, leverage, liquidity, foreigner exchange, and inflation rate were had a positive effect on awash bank profitability; whereas operating expense, number of employees and credit risk were negative determinants; and Bank age and gross domestic product growth rate was found to be none determinant factors for awash bank profitability. In the case of dashen bank, bank age, number of employee, foreign exchange rate, and inflation rate are positive determinants, whereas number of branches, capital strength and leverage are negative determinant factors. Besides, bank size, credit risk, liquidity and gross domestic product growth rate are insignificant in affecting profitability of dashen bank. The study suggests that focusing and reengineering the banks alongside the key internal and external drivers could enhance the profitability.