THE IMPACT OF ASSET DIVERSIFICATION ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN ETHIOPIA

Abstract

The objective of this study is to see how asset diversification affected the financial performance (ROA) of Ethiopian commercial banks. For the study, the population was the entire commercial banks in Ethiopia, which is thirty-one, and the sample size is eight commercial banks which have more than ten years. The study covered the period from 2014-2023 which is a total of 80 observations was made using audited financial statements. The methodology this study adopted was explanatory research design, which was used to understand the cause-and-effect relation of asset components and its financial performance. The study was conducted based on quantitative research approach. The collected panel data was analyzed using descriptive statistics, and multiple linear regression analysis using EViews software. Besides the descriptive interpretation, the researcher used tables and figures to present the findings of the study. The study finding shows that loan and cash have positive and significant effect on the financial performance whereas fixed asset has negative and significant effect but the remaining two( financial asset and current asset) shows insignificant relationship with the financial performance so the researcher recommended that bank manger as well as bank policy makers should be more focuses on diversifying their asset on loan and advance and should increase their allocation of cash holding through cash budgeting (estimated projection of cash position in the future) to maintain optimum cash position level and banks should decrease investment on fixed asset so as to increase the banks’ profitability