Author(s): Adugna Megenasa Biru
This study was aimed to investigate determinants of financial performance of private commercial banks in Ethiopia. The study has employed explanatory research design in quantitative research approach. An audited financial statement of private commercial banks was used for the period 2010 to 2019 to carry out the study. Out of the 16 private commercial banks; eight (8) banks were selected as sample using purposive sampling based on the banks’ age and experience. The data were analyzed using descriptive and inferential statistics such as correlation analysis, Random and Fixed effect regression analysis. The finding of the study indicates that microeconomic factors namely; capital adequacy, asset quality, liquidity position and number of bank branch had positive and significant effect on return on asset (ROA) & return on equity (ROE) of private commercial banks in Ethiopia. From macroeconomic factors interest rate had a negative significant effect on return on asset and had no effect on return on equity. Similarly, Gross Domestic Product had negative and significant effect on return on asset (ROE) & had insignificant effect on return on asset (ROA) of private commercial banks in Ethiopia. Therefore, the private commercial banks should give due consideration on improving those internal factors since they significantly and positively affect their financial performance. Similarly, the concerned executive body should get updated information about coming change GDP and interest rate and adjust their bank functions according to change in the environment and be efficient since these factors had negative and significant impact on bank financial performance.