effects of investment on the financial performance of commercial banks in Ethiopia

Abstract

This thesis investigates the effect of investment on the financial performance of commercial banks in Ethiopia. The objective of this study was to investigate the Effect of Investment on the Financial Performance of commercial banks in Ethiopia. This aimed investment improves the financial performance of commercial banks or not. The analysis considered the presence of different commercial banks i.e. public and private commercial banks. The study used a sample of 8 commercial banks out of 17 from 2006 to the 2020 year financial statements. The fixed effect regression technique and correlation were used to analyze the data using the econometric package stata 16 software. The sampled data was also presented and analyzed by using descriptive statistics by mean, standard deviation, maximum and minimum. The dependent variable used to estimate commercial bank's performances were return on equity. The researcher used Investment in the national bank of Ethiopia bill purchase (NBE BILL), Investment in foreign bank deposit (FBD), Investment in equity (IE), and Investment in fixed asset (FAI) as independent variables. The researcher also used capital adequacy ratio, inflation and GDP as control variables. The study finds that commercial banks performance measurement i.e. ROE has a strong and significant relationship with investment in foreign bank deposit and investment in equity. On the other handinvestment in national bank of Ethiopia bill has a negative and significant effect on return on equity. Investment in fixed assets has also shown insignificant and negative effect at 5% level of significant. Furthermore, capital adequacy ratio has positive and significant effect on return on equity. In addition inflation and GDP has insignificant and positive effect on return on equity. So the study recommended commercial banks are advised to invest in equity & foreign bank deposit in order to enhance the financial performances.