The Impact of Operating Efficiency, Non-Interest Income, and Bank Size on Profitability: Evidence from the Ethiopian Banking Sector

Abstract

This manuscript examines the effect of operating efficiency and non-interest income on bank profitability in the Ethiopian banking sector. Drawing on a comprehensive literature review and utilizing panel data from 15 banks over a specified period, we investigate the determinants of profitability and their implications for the Ethiopian banking landscape. The findings reveal that operating efficiency, measured through various indicators, positively influences bank profitability, aligning with prior research. Furthermore, the analysis highlights the complex relationship between non-interest income and profitability, indicating a significant but non-linear association. The study also underscores the role of bank size and leverage as important factors shaping profitability in the Ethiopian context. The results contribute to the existing literature by providing empirical evidence on the specific dynamics of the Ethiopian banking sector and offer valuable insights for policymakers and industry practitioners. By understanding the factors that drive bank profitability, stakeholders can formulate effective strategies to promote a sustainable and robust banking sector in Ethiopia. This manuscript provides a valuable contribution to the literature and offers actionable recommendations for enhancing the performance and profitability of banks in Ethiopia.