Determinant of Non-interest Income of Commercial Banks in Ethiopia

Abstract

This study presents an analysis of Ethiopian commercial banks non-interest income earning decision. The objective of the study is to show the determinant of non-interest income earning of commercial banks in Ethiopia by considering bank specific characteristics and macroeconomic factors. For this purpose, the study conducted on six commercial banks selected by purposive sampling technique which is based on secondary source of data collected from National Bank of Ethiopia. The study used random effect model of regression technique, correlation analysis and descriptive statistic. The dependent variable used for the study is non-interest income of commercial banks in Ethiopia and Bank size; capital asset ratio; loan asset ratio and GDP are considered as independent variable. The empirical result of the study shows that bank size, capital asset ratio and GDP positively affect the non-interest income of commercial banks and loan asset ratio affect negatively the non-interest income earning of commercial banks in Ethiopia. The three independent variables bank size, GDP and loan asset ratios have statistically significant impact on non-interest income earning of commercial banks in Ethiopia at 5% of significance level but capital asset ratio has statistically insignificant even at 10% significance level. Finally the study recommended that decision makers on non-interest income earning of commercial banks in Ethiopia should increase their capital and asset position. Also they should understand and absorb some revenue from growth of real GDP of the country through diversifying their non-interest income earning base. Even though it has no sense on decreasing conventional banking activity or landing, decision makers should consider maximizing of their risk less income earning from other non-conventional activity or non-interest income earning will be decline.