Determinants of sustainable growth rate of commercial banks in ethiopia: evidence from panel data analysis (2005–2023)

The sustainable growth rate (SGR) of commercial banks is a critical indicator of long-term financial viability, particularly in developing economies undergoing financial sector reforms. Yet, SGR determinants in Ethiopia’s rapidly evolving banking landscape remain strikingly underexplored. This study investigates bank-specific and macroeconomic drivers of SGR across 30 Ethiopian commercial banks (2005–2023), using an unbalanced panel of 455 observations. Fixed Effects (FE) estimation with cluster-robust standard errors—validated through F-test and Hausman specification tests, and confirmed by System GMM robustness checks—evaluates the impacts of asset quality, asset management efficiency, leverage, profitability, bank size, intellectual capital, capital adequacy, GDP growth, inflation, and structural shock variables (political instability, global financial crises) on SGR. Results demonstrate that asset management efficiency, profitability, bank size, capital adequacy, and GDP growth are robust positive drivers of SGR. Conversely, leverage, asset quality, inflation, and both crisis dummies exert a significant drag on sustainable growth rate. Notably, intellectual capital is the sole variable that proves insignificant. The study recommends that banks aggressively optimize asset management and control non-performing loans, regulators enforce prudent leverage ceilings, and policymakers preserve macroeconomic growth momentum while strictly controlling inflation. By incorporating political instability and financial crisis dummies from an under-researched frontier market, this study delivers timely, actionable intelligence as Ethiopia liberalizes its banking sector to foreign investors.