Saint mary’s university

Chapter Five

Conclusion and Recommendations

1. Conclusion

The objective of this paper was to analyse the effect of regulatory actions taken by the National Bank of Ethiopia on the profitability of six private commercial banks in Ethiopia. For our case at hand three regulatory variables affecting banks performance were chosen and analysed. The panel data was used for a sample of six private commercial banks in Ethiopia from 2001 to 2014. Data was presented by using descriptive statistics. Before performing OLS regression the models were tested for the classical linear regression model assumptions, the models fulfil all assumptions of the CLRM. Fixed effect model/FEM was used based on convenience. Variables were classified in to three as regulatory, bank specific and macroeconomic, the latter two were control variables. From the list of possible explanatory (i.e. regulatory) variables, most of them are statistically significant and the results of models enable us to make following conclusions.

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  NBE-Bill purchase has negative and significant effect on banks performance measured through Net Interest Margin. The researcher concludes that investment in NBEBills results a negative impact due to the lesser amount of interest rate compared to the amount of interest rate if the amount invested on the Bill was invested on other investments.
  
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  Change in reserve requirement has no statically significant effect on the banks cost
  

of intermediation measured through Net Interest Margin.

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  Credit cap has negative and statistically significant effect on banks performance measured through Net Interest Margin. The researcher concludes that credit cap has a negative impact on banks performance and this is due to the fact that under credit celling policy, interest income generated from loans will decrease but the bank will pay an interest expense for the depositors no matter what amount the banks get an interest income from the loan.
  
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