The Determinants Of Financial Distress Empirical Evidence From Banks In Ethiopia

This research is aimed to test the level of financial distress of commercial banks in Ethiopia andrnidentify its determinant. In order to achieve these objectives secondary data was collected forrneight banks for sample period covering from 2006 to 2015 and analyzed using descriptivernstatistics and fixed effect (FE) regression model. Based on the descriptive statistics the studyrnconcludes that sampled banks were under distress. The FE regression model identified capitalrnadequacy, management efficiency, earning ability and bank size as having negative effect onrnbanking financial distress and except size all of them appeared significant; whereas asset qualityrnand liquidity appeared as having positive effect, but liquidity was only significant. Regarding thernmacroeconomic factors, economic growth and saving interest rate have significantly negativernand positive effect on banking financial distress respectively; whereas inflation was notrnsignificant. In general, the research concludes that both bank specific and macroeconomicrnfactors determine the level of financial distress of Ethiopian commercial banks.rnKey words: Altman Z-score, CAMEL, Financial Distress, Ethiopian Commercial Banks

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