Article: “The Impacts of Macroeconomic and Bank Specific Variables on Financial
Performance of Commercial Banks in Ethiopia”
Article Bibliographic Information: Buzayehu Abera Lemi ‘’the Impacts of Macroeconomic and
Bank Specific Variables on Financial Performance of Commercial Banks in Ethiopia’’
Authors’ Profile: The thesis was written by Buzayehu Abera Lemi from Jimma University. A
Thesis Submitted to the Departments of Accounting and Finance, College of Business and
Economics, Jimma University in the Partial Fulfillment of the Requirements for the Award of
Degree of Masters of Science in Accounting and Finance. The Author can be contacted by his
address of e-mail: buzlemi@gmail.com
Publication Information: International Journal of Commerce and Finance, Vol. 6, Issue 2, 2020,
198-206 http://ijcf.ticaret.edu.tr/index.php/ijcf/article/view/215
Thesis Statement and Purpose
In the case study the authors aimed to examine the impacts of the macroeconomic and bankspecific variables on profitability of commercial banks in Ethiopia.
Introduction of the paragraph
This article review has been initiated by instructor for the purpose of the assignment of advanced
research method. Following this we select The Impacts of Macro-economic and Bank Specific
Variables on Financial Performance of Commercial Banks in Ethiopia which related to Accounting
and finance departments. This review enables us to understand the theory of money supply, cash
reserve and financial performance and how it would incorporate with empirical literature to apply
in real world. In addition to this, review will help us how to perform the research thesis for
academic qualification to learn how to identify the significant area of the study, how to apply
research methodology and select sources of data, how to analyze the results to achieve a
conclusion.
Summary of the Article
The Author his article he evaluated the impacts of the macroeconomic and bank-specific variables
on profitability of commercial banks in Ethiopia. The variables selected in the study were Gross
domestic product (GDP), inflation, Broad money supply and Cash reserve ratio from the macro
economic variables. In addition to this, other bank specific variables such as bank size, credit risk
and leverage ratio has been included in his study.
The researcher mainly identified the broad money supply and cash reserve variables as research
gap as they were not considered in in the research conducted in Ethiopia commercial banks.
The researcher applied the data methodology in the study is a quantitative & explanatory method.
When we consider the objective of the study i.e. investigation of the effect of macro-economic
variables in the profitability of commercial banks in Ethiopia the methods used happens to be
relevant and sufficient. In addition the author uses panel data for more than seven banks which are
taken to be representative, taken based on purposive sampling techniques. It is known that
purposive sampling techniques is used when the subjects in the study are homogenous.
Another important point is that the researcher uses secondary data collected for over 18 years
which mainly focused on the subject’s financial performance.
In addition the study analyzed the collected panel data using descriptive statistics, correlation
matrix and multiple regression analysis (by formulated an econometric model) and the Data related
to Macroeconomic variables was collected from annual reports of NBE. STATA software package
version 14.0 was used to conduct the multiple linear regression analysis which suits the study
objectives.
The researcher as carried out the model assumption tests that to insure that all OLS assumption
has been satisfied before the estimation. Those assumption are Heterosced asticity, Normality,
Omitted Variables, Hausman test and multicollinearity where tested and checked. Then BreuschPagan test was also used to test the problem of heteroscedasticity which Breusch-Pagan test
assumes the error variance is constant. All assumptions were satisfied the model except the
presence of heteroskedasticity model, where robust standard error was used to detect this problem.
After developing the model by using STATA software the researcher analyzed the results of each
variables used in the evaluation of their impact on profitability as follows:
When the money supply and cash reserve increases the bank profitability would significantly
decreases, whereas when GDP and Inflation increases profitability also increases.
When credit risk and leverage increases profit will significantly decreases however bank size don’t
have impact on the banks profitability.
Critical evaluation
This review identified the researcher’s strength and weaknesses in his study. The researcher review
broad empirical literature to identify the gap for his research conduct and summarizes in the table
form and focused to include the broad money supply and cash reserve ratio as they were ignored
in other studies to evaluate as significant factor on the profitability of Ethiopian commercial banks.
The author used the latest research software at a time called STATA Software package version
14.0.
Other strength of the researcher is that he applied different statistics techniques; those are
descriptive statistics and multiple regression model in his study. The model also tested to ensure
that the Best Linear Unbiased Estimators assumption is satisfied. Go further for heteroscedasity
presence to detect by using robust standard error.
The factors included and the time period of 18 years appears to be appropriate to examine their
impacts on profitability. The number of banks targeted in the study is seven commercial banks out
of eighteen banks which represent 38.9% only. This limit would doubt the research conclusion.
The researcher used secondary data type gathered the banks financial statement and macroeconomic indicators from National Banks of Ethiopia who is a regulator of commercial banks. The
study solely rely on the secondary data to conclude the objective of the stud. This may not be
sufficient alone and the primary data type should have been included in the study. The interview
or questionnaires might help author to obtain the feelings of respondent particularly Bank
managers either to support or to oppose the results of secondary data obtained.
The study targeted seven commercial banks including one government banks. This government
commercial banks appear to be biggest bank in all selected banks. When we review the information
on the research the total asset of this government bank represent 75% of all selected banks, whilst
the second biggest banks represent only 6%. Using this different banks altogether may impacts the
results of the research.
Conclusion
The review identified some strength and weakness of the author in the research work. He identified
relevant study area and research gap such as impact of money supply and cash reserve factors and
applying strong statistical techniques.
However, during the review of the study some weaknesses has been identified. The number of
population used and reliance on secondary data only as a weakness of the researches.