Saint mary’s university

Model Specification and Variable Description

1. 
   Model Specification
   

The main objective of this study is to investigate the impact of national bank regulation on performance of private commercial banks in Ethiopia. The study explained bank performance (NIM) in the commercial banks supervised by national bank of Ethiopia, using empirical model that includes a measure of regulations plus a number of other major determinants that includes bank specific and macroeconomics indicator.
A linear regression model of financial performance versus regulation has been applied to examine the relationship between the variables. The model treats financial performance of commercial banks as dependent variable while independent variables are bank regulations and other macroeconomic and bank specific variables.
Therefore, to see the impact of regulatory measures on banks performance, the significant factors affecting banks performance were used as the representatives for the variation in performance. Therefore the following regression models were used to see the effect of regulatory variables, while controlling bank specific and macroeconomic variables on banks performance. Thus, the general panel regression model was as follows:

it
^Iit=^{α+ β}1^xBit^{+ β}2^xS it+^β3 ^{XM + ε}it

Where the subscripts i and t represent: respectively individual banks, and the time variable α is a constant term, β is coefficients for the respective variables, the dependent variable I

represents bank interest margins .X^B,X^S,and X^Mare respectively vectors of bank-specific variables, market structure variables and macroeconomic variables; ε represents the residuals. Accordingly the detail model is specified below.
Model

𝑁𝐼𝑀 = 𝛽₀ + 𝛽₁𝑁𝐵𝐸𝐵 + 𝛽₂𝐶𝐶 + 𝛽₃𝑇𝑂𝐸 + 𝛽₄𝑅𝑅 + 𝛽₅𝑅𝑂𝐸 + 𝛽₆𝐻𝑆 + 𝛽₇𝐶𝑃𝐼 + 𝛽₈𝐺𝐷𝑃

+ 𝛽₁𝐿𝑅+∈

3.4.2 Description of variables

Figure 1Summary of the operational panel regression model