The Effect of ALM on Commercial Banks Profitability

This book examined the effect of ALM on commercial banks profitability in the Ethiopian. The SCA model was used to estimate the profitability which is measured by ROA as a function of balance sheet and macroeconomic explanatory variables. Eight commercial banks over the time period from 2005 to 2010 were taken. The model hypothesize that the rate of return on earning assets is positive and varies across assets, and the rate of cost on liabilities is negative and varies across liabilities. From the pooled OLS regression analysis, the result showed that all assets, except fixed assets, mainly loans and advances affect profitability positively, while all liabilities mainly saving and fixed deposits and other liabilities and credit balances have significant and negative effect on commercial banks profitability. With regard to macroeconomic variables, real growth rate in GDP has negative and significant effect on commercial banks profitability. As a result, the study recommended that commercial banks should focus on increasing public awareness to mobilize more saving and fixed deposits and this will enhance their performance in provision of loans and advance to customers.

Autorentext

Mr. Tamiru Belete, MSc: Studied Accounting and Finance at Bahir Dar University. Lecturer at University of Gondar, Gondar, Ethiopia.