The Effect Of Financial Leverage On Profitability Of Commercial Banks In Ethiopia

The main objective of this study is to examine the effect of financial leverage on profitability of commercial banks in Ethiopia. The study sampled 10 banks over eight year period from 2010 to 2017 and extracted data from the National Bank of Ethiopia. Data was analyzed using descriptive statistics, correlation analysis as well as panel regression analysis. Then, regression result indicates that, the degree of financial leverage had negative and statistically significant impact on profitability of commercial banks. Moreover, debt to equity had negative insignificant relationship with profitability, while debt to asset and capitalization ratio had positive and statistically strongly significant relationship with profitability. Finally, bank size had statistically significant effect on profitability. Therefore, banks should give due consideration to manage their debts properly, mobilize deposit sufficiently, increase loan advances, spread, and size in their financing decisions.

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