DETERMINANTS OF THE PROFITABILITY OF PRIVATE COMMERCIAL BANKS IN ETHIOPIA: CAMEL APPROACH

Abstract

The objective of the study was to determine the impact of CAMEL ( Capital adequacy, asset quality, Management efficiency, Earning ability and Liquidity) on the profitability of private commercial banks of Ethiopia. The financial performance of fourteen private commercial banks was examined by using panel data of five years from the year 2013 to 2017. The study used quantitative research approach and secondary financial data was analyzed by using multiple linear regression model. Fixed effect model was applied to investigate the impact of the independent variables; Capital adequacy, asset quality, Management efficiency, Earning ability and Liquidity on bank profitability measure; Return on Asset(ROA), which is considered as the dependent variable. The study used E-views8 software for the analysis. Data analysis has been done using descriptive statistics, correlation analysis and multiple linear regression model. The regression result shows that asset quality, management efficiency, earnings and liquidity as statistically significant determinants of profitability while capital adequacy was found to be statistically insignificant determinant of Ethiopian private commercial banks performance.