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RESEARCH ON " FINANCIAL PERFORMANCE ANALYSIS IN BANKING SECTOR (IN SELECTED COMMERCIAL BANKS IN ETHIOPIA
by Gudata Abara
ARTICLE INFO ABSTRACT The study deals with assessment of financial performance analysis in Ethiopian commercial banking sector for a period of Ethiopia stands first in assets management where as Awash International Bank took the first rank in terms of profitability performance. The third finding explains that Co Bank pertains to stand last in terms of liquidity management. Lastly, Private owned bank, United Bank stood at the first rank in terms of solvency and risk management among all sample banks under study.
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The study was attempted to investigate determinants of financial performance of commercial banks in Ethiopian by using secondary data. The data were obtained from audited financial statements of five sampled commercial banks for the period of 1997 to 2017 and National Bank of Ethiopia. The study used return on assets (ROA) and return on equity (ROE) as dependent financial performance variable. Moreover, the study used bank specific variables as explanatory variables. Both descriptive statistics and econometrics model specifically fixed effects estimation were used to analyze the relationships of dependent variable with explanatory variables. The major findings of the study shows that bank specific determinants were very important in explaining financial performance of commercial banks. The management efficiency, customer deposit to total asset ratio, capital adequacy ratio, loan to deposit ratio were positively and significantly related to bank’s financial performance. The study ...
This study examines the determinants of financial performance of a private commercial bank by using the monthly financial statement of Bank ''X''3 from 2011 to 2016. A quantitative research approach was adopted, and the data were estimated using the Ordinary Least Square approach of multiple linear regression model. The study examined only internal factors such as capital adequacy, loan to deposit ratio, income diversification, operating efficiency, export, liquidity, loan performance and deposit mobilization as explanatory variables. Return on Asset, Return on Equity and Net Interest Margin were used as dependant variables to measure the financial performance of the Bank. The finding of the study revealed that income diversification, deposit amount, export level and loan performance have a significant influence on the financial performance of Bank ''X''. Therefore, it is recommended that commercial banks should increase export proceed, capital and lo...
Tesfaye Boru Lelissa (PHD, FCCA, CERM)
This paper investigates the determinants of Ethiopian banks performance considering bank specific and external variables on selected banks' profitability for the 1990-2012 periods. The empirical investigation uses the accounting measure Return on Assets (ROA) to represent Banks' performance. The study finds that bank specific variables by large explain the variation in profitability. High performance is related to the ability of banks to control their credit risk, diversify their income sources by incorporating non-traditional banking services and control their overhead expenses. In addition, the paper finds that bank's capital and liquidity status are not significant to affect the performance of banks. On the other hand, the paper finds that bank size and macroeconomic variables such real GDP growth rates have no significant impact on banks' profitability. However, the inflation rate is determined to be significant driver to the performance of the Ethiopian commercial banks INTRODUCTION Banks play a vital role in economic development through engaging themselves in an intermediary role which enhances investment and growth. Bashir 2007, observe that commercial banks contribute positively to economic growth by channeling surplus funds to their most productive uses. The literature not only showed the greater function of banks in the economy but also stressed that without the existence of a sound and efficient banking system, the economy can't function well. When a bank fails, the whole of a nation's payment system is thrown in to jeopardy (Ikhide, 2000). On the other front, studies also shown that bank performance also is influenced by the business cycle or economic performance (Dermerguc-Kunt,A. and Huizinga, H., 2001). Both ways of arguments justify the close link of banks and the economy which instigates the need to understand the determinants of bank performance from both the Bank and the aggregate economy wide perspectives. Thus, financial performance analysis of commercial banks has been of great interest to academic research. The performance of commercial banks can be affected by internal and external factors (Flamini, C., Valentina C., McDonald, G., Liliana, S. (2009)). These factors can be classified into bank specific (internal) and macroeconomic variables. The internal factors are individual bank characteristics which basically are influenced by the internal decisions of management and board. The external factors are sector wide or country wide factors which are beyond the control of the company and affect the profitability of banks. Studies have shown that commercial banks in Ethiopia are more profitable with an average Return on Equity (ROE) of 21percent (Yigremachew 2007). One of the major reasons behind high return in the sector is the existence of huge gap between the demand for bank service and the supply thereof. The Bank branch to population ratio reached 62,063.6 in during FY 2011/12 (NBE annual report 2011/12). That means, in Ethiopia despite the growth trend in the number of bank branches, the number of banks are few compared to the demand for the services. Recent data also testifies that mostly, the banking sector has experienced a trend of growing profitability alongside positive trends related to balance sheet expansion (NBE Report 2011/12). However, the contributing factors, whether internal or external, to the greatest profitability earned by the industry was not well analyzed. It is important therefore, to understand if the banking sector profitability is being driven by factors related to the bank or are from external sources or both. This raises some important issues: To what extent endogenous factors impact the performance of banks? Do external factors impact the financial performance of commercial banks in Ethiopia? This will be helpful to identify the reason for the success of some commercial banks among the group and helps to identify the determinants for better performance of the Ethiopian banks. This study, hence basically intends to systematically identify and measure both internal and external factors that impact the performance of the Ethiopian banking sector using data from 1990-2012. The study has different perspectives than the usually observed performance measures applied in most studies done in Ethiopia and other countries. The gaps in literature this study tried to incorporate include: • Most of the research works were not following the regulatory standards to identify the various internal factors that determine the performance of banks. The frameworks used to identify internal determinants sometimes vary with the regulatory rating standards. Also the financial ratios to be used for measuring performance are not in line with the regulatory organ. For instance the loan to deposit ratio which is
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The main purpose of this paper is to investigate the bank specific factors which can affect the financial performance of private commercial banks in Ethiopia. A total of 6 private commercial banks (those having well organized financial data till 2017) were purposefully taken & their audited annual financial reports were analyzed for the period of 2011-2017. For this purpose, descriptive statistic, Pearson Correlation Coefficient and Multiple Linear Regression Analytical approaches were applied. In this study, return on equity, return on asset and net interest margin as the dependent variables and bank specific factors like banks size, liquidity management, asset quality, management efficiency and capital adequacy as independent variables were used. Any autocorrelation problem was checked. The results indicated that capital adequacy, management efficiency and size of banks have positive and statistically significant effect on financial performance of private commercial banks of Ethio...
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This study examines the determinants of financial performance of commercial banks in Ethiopia by using panel data of seven sample commercial banks out of eighteen commercial banks operated in Ethiopia over the period 2000-2014. Since the data is secondary in nature, the quantitative approach to research was used. Besides, the random effect model was used. Under this study, both internal and external factors were included. The internal factors used in this study include capital adequacy, Asset quality, Earning ability, liquidity management and Bank size whereas, the external factor is foreign exchange rate. Moreover, ROA, ROE and NIM were used to measure the financial performance. This study runs a redundant fixed effects test using Hausman specification test. Hence based on the result random effect model was adopted. Based on the regression result; asset quality, earning ability and bank size have a significant influence on the financial performance of Ethiopian commercial banks mea...
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LITERATURE REVIEW OF FINANCIAL PERFORMANCE AND FINANCIAL DISTRESS: LIQUIDITY AND PROFITABILITY ANALYSIS (FINANCIAL MANAGEMENT LITERATURE REVIEW)
Main Article Content
Literature article Reviewing the Effect of Liquidity and Profitability in the context of financial management, a scientific study titled Financial Performance and Financial Distress tries to provide a research hypothesis on the interaction between factors. This literature review was written using the library research approach, including information from online academic databases like Google Scholar, Mendeley, and others. The outcomes of this article's literature review are:1) Liquidity affects Financial Performance; 2) Profitability has an effect on Financial Performance; 3) Liquidity affects Financial Distress; 4) Profitability has an effect on Financial Distress; and 5) Financial Performance Affects Financial Distress; In addition to these 2 external factors that influence the endogenous variables Financial Performance and Financial Distress there are still other additional elements, like as Leverage, Solvency and Activity variables.
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