Structure Conduct and Performance Analysis in Ethiopian Banking Industry

Abstract

This study analyzes the Structure, Conduct and Performance of Banking Sector in Ethiopia using balanced panel data of 10 years (2009-2018). The study also used the Random effect model for the Return on Asset (ROA) and fixed effect for Return on Equity (ROE) econometric model based on the Hausman model specification test. Accordingly, market concentration measure displayed that there was more concentration ratio in terms of asset, deposit , loan and advance in Ethiopia banking sector.The econometrics analysis results also revealed that bank specific factors such as Bank size, Loan to Deposit Ratio, Income Diversification, concentration and growth deposit are statistically significant and positively related in determining profitability of banks, whereas the cost- income ratio is statistically significant and negatively related with bank’s profitability. The study result also revealed that capital adequacy, loan to deposit ratio, concentration and market share (deposit) factors have positive and statistically significant relationship with Return on Equity (ROE). However, the cost - income ratio (CIR) has a negative and statistically significant relationship with Return on Equity (ROE). In general, the overall empirical findings provide evidence that the profitability of banks is mainly dominated by bank-specific factors which are in the hands of the management of the banks. So, the study suggests to
the bank managers and policy makers to give high concern on the internal factors of profitability and set direction to manage the most dominant factors of performance.