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Modeling Determinants of Private Banks Profitability in Ethiopia

Author

Listed:
  • mohammed, habib
Abstract
Profitability of financial institutions play a vital role in determining the effectiveness and efficiency of the financial system globally and it is dominated by the banking industry. These banks generates profits that results panel data that requires panel model to analyze and explore determinant factors associated with its profitability. The aim of this article to model determinants of private banks profitability in Ethiopia during 2012–2021 considering its dynamic nature. Return on assets, return on equity, and net interest margin were used as profitability indicators and analyzed using dynamic panel model estimation methods based on system generalized moment estimation techniques. The exploratory data analysis result showed the profitability; return on asset was seems stable while return on equity was decreased and net interest margin was increased with decreasing rate. The model specification result showed one-step system generalized moment method estimation was an appropriate estimation technique as model estimation result directs lagged profitability, capital adequacy, asset quality and branch of banks have positive significant effect on private banks profitability. Similarly inflation rate and economic growth rate have positively determine private banks profitability on macroeconomic side. Despite to this results liquidity was significant negative bank specific determinant of private banks profitability in Ethiopia. The study result recommends consideration on capital adequacy, asset quality, liquidity, branch of banks for the private banks profitability. In addition, this study will call upcoming research to include other financial determinants suggests such as credit risk and non-performing loan with improving the estimation method of panel autoregressive distributed lag models for modeling private banks profitability in Ethiopia.

Suggested Citation

  • mohammed, habib, 2023. "Modeling Determinants of Private Banks Profitability in Ethiopia," MPRA Paper 116817, University Library of Munich, Germany, revised 25 Mar 2023.
    • Handle: RePEc:pra:mprapa:116817
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    File URL: https://mpra.ub.uni-muenchen.de/116817/1/MPRA_paper_116817.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Dynamic Panel Model; Ethiopia; Generalized Moment Method; Panel Data; Private Banks; Profitability;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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