Abstract:
The purpose of this study was to investigate the effects of CAMELS elements on profitability
of nine senior Ethiopian private commercial banks for the periods 2010-2017 and thereby
rank the overall financial performance of the respective banks. The financial performance of
nine private Ethiopian commercial banks was selected based on the purposive sampling
technique. Only the secondary data from audited financial statements of the selected banks
were adopted .To accomplish the stated objectives explanatory and descriptive research type
were used. The collected data were analyzed by using both descriptive and inferential
statistical tools. The descriptive statistics tools were used to rate the overall financial
performance of the banks, while panel regression model were used to measure the impacts of
CAMELS elements on the bank performance i.e. ROA and ROE. Based on the composite
ratings of the individual rankings of the bank LIB, NIB and Wagagen bank listed from first to
third. This study runs the redundant fixed effects test using Hausman specification test to
choose between random and fixed effect model. Hence based on the result from the
regression analysis, OLS model was adopted. Based on the regression result; management
efficiency, earnings ability, liquidity management and sensitivity to market risk have a
significant influence on the financial performance of Ethiopian private commercial banks
measured by return on asset and return on equity. The management of commercial banks
should strive to strengthen the above mentioned significant variables. The regulatory organ
National bank of Ethiopia should consider the effect of sensitivity to market risk equally as
the sixth components of CAMELS elements for the estimation of the bank performance and
soundness as also being recommended by IMF and World Bank.
