| Abstract: | Unlike foreign banks operating in exposure to foreign competition, private commercial
banks in Ethiopia have adapted diversified income sources business approaches
since the establishment and commencement of service delivery. This paper is the
first paper to identify the main determining factors of diversified areas of income
source commonly called Non-Interest Income (NonII), other than traditional interest
income in Ethiopian private commercial banks. NonII (dependent variable) is
a combination of different sub-components among which this paper lists out nine
independent variables (Deposit, Liquidity, Loan, Foreign Currency, Net-Interest Income,
Provision for loan loss, Capital, Asset and Inflation). The data/variables are
seven years (2007/8 – 2013/14), collected from nine (9) private commercial banks’
financial statements. The banks selected in simple cluster sampling technique. The
method of analysis conducted at two stages; the first stage of trend/time series analysis
done by calculating the yearly mean and coefficient of variation of the selected
banks and have pointed out the interdependency of NonII and Net-Interest Income
and the income stabilization role of NonII by offsetting risks of decline in interest
income. Though, accompanied by high volatility, smaller banks generate higher
NonII than larger banks. On the other hand larger banks are more stable and efficient
in asset utilization than smaller banks. The second stage of multiple regression
analysis conducted on the ten variables and helps to pinpoint two main determining
factors of NonII for Ethiopian private commercial banks. Foreign currency holdings
and Asset sizes are great contributors for NonII. The study output compared against
priori studies conducted in Africa and European Union, and basic similarity and
differences observed. The study is the first of its kind (keeps originality) and the results
of the analysis can be informative for the banking industry, when reconsidering
its business model in the light of current as well as future financial market developments.The study result as well shades some light for further investigation. |
