DETERMINANTS OF NON-INTEREST INCOME IN ETHIOPIAN COMMERCIAL BANKS: THE CASE OF PRIVATE COMMERCIAL BANKS

Abstract

This paper aimed at investigating the factors determining non-interest income of private commercial banks in Ethiopia. The study employed quantitative research approach and explanatory research design. Population of the study is all private commercial banks registered by National Bank of Ethiopia and seven private commercial banks were selected by using purposive sampling technique. This study used a panel dataset of audited financial statement of banks between the years of 2005 and 2016. Seven independent variables were investigated using OLS regression techniques. The models considered the effect of bank specific factors which are relative bank efficiency, liquidity, bank size, capital adequacy, loan quality and external factors such exchange volatility and real GDP growth on non-interest income of private banks in Ethiopia. Empirical results verified that the non-interest income of private banks related strongly and directly with bank specific factors which are relative bank efficiency, bank size, and bank liquidity. However capital adequacy and loan quality are inversely related but they are insignificant. On the other hand exchange volatility has direct and significant relation with noninterest income of private commercial banks. However, there is no relationship of real GDP growth, with non-interest income of bank. Therefore, it is recommended that private commercial banks should increase their level of bank efficiency, asset, liquidity, foreign currency generation, level diversify their non-interest income sources in order to increase non-interest income of the bank.