DEBRE MARKOS UNIVERSITY BURE CAMPUS

DEPARTEMENT OF ACCOUNTING AND FINACE

ASSESSMENT OF FACTORS AFFECTING THE PROFITABILITY OF

COMMERCIAL BANK OF ETHIOPIA (A CASE STUDY IN CBE
MEHAL BURE BRANCH)

By:

Name ID Number

Sinidu Balew BEE/3858/12

Advisor’s Name: Biniam (MSc.)

ASENIOR ESSAY SUBMITTED TO ACCOUNTING AND FINACE DEPARTEMENT

IN PARTIALL FULFILMENT OF THE REQUREMENT FOR BACHELOR OF ART
DEGREE IN ACCOUNTING AND FINACE.

June, 2024

Bure Damot, Ethiopia

 ACKNOWLEDGMENT

First, we would like to express our deepest and heart full thanks to our God. In addition,
gratitude to our advisor Biniam (MSc.) to invaluable comments and professional advice.

Next; our special thanks also goes to our families they support our in every aspect of our life
in financial as well as materials and all our friends who assisted in different aspects

Next, I would like to thank my families who support me financially and morally.

Thirdly, I would like to thanks all respondents who completed my research questionnaire and
those who given me necessary information.

Finally, I would like to thank my class friends for their commitment and practice while I
conduct this study.

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Abstract

Every business organization face a problem, which hinders its objective for which it is
established. Therefore, like any business organization CBE faces many problems which
affects its profitability and the main purpose of this study is to assess factors affecting
profitability of CBE Mehale Bure branch.

The researcher use both primary and secondary source to gather data. The primary sources
of data are related to the questionnaires distributed to both customers and employees of CBE
Mehale Bure branch and they are the main sources of the study.

The researcher use judgmental random sampling method to take thirty active customers and
forty employees of CBE branch. The processed data was analyzed using descriptive statistics
both data analysis methods. (I.e. quantitative and qualitative data analysis method) use in the
study the data collected through questionnaire will be analyzed using different descriptive
analysis like percentage, pie chart and tables.

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ABBREVIATION (ACRONYMS)

ATM: Automated teller machine

CBE: Commercial bank of Ethiopia

CSA: Central statistical agency

DG: Deposit growth

ROA: Return on asset

ROE: Return on equity

III
 CHAPTER ONE
1 INTRODUCTIN

1.1. Background of the Study

The history of bank in Ethiopia back to establishment of bank of abyssinia1905 the bank was
the first in Ethiopia established the partnership of the government of Ethiopia and the national
bank of Egypt. This bank continued until 1931. Later on it was wholly purchased by
government of Ethiopia and renamed “the bank of Ethiopia” this bank operated until the
Italian innovation in 1936.

From 1936-1942 (NB these year will be marked by Italian occupation) there will a few Italian
bank operating. After the over, the fascist Italy the commercial bank was legally established
as a share company in 1963 to take over the commercial banking activates of state bank of
Ethiopia, which was found in 1942 with twin objective of performing the duties of
commercial bank and central banking during the 1974 revolution. Commercial bank of
Ethiopia got its strength by merging with the private owned Addis Ababa bank. Since then it
has been playing significant role in the development endeavor of the country the commercial
bank of Ethiopia ,which is striving to become a world-class bank is rendering the state of art
and reliable services to its millions of customer both at home and abroad . The business
strategies of the bank focus on the interest of the public services. As the fiscal year 2010/11,
the bank had over 400 branches stretched across the length and breadth of the country, and
over employees whom it regards its key assets.

The state owned commercial bank of Ethiopia still dominate the market in terms of assets,
capital and customer base and branch network, despite the growing competition from private
bank over the last 15 years. This is makes one of the most reliable strong commercial bank in
the county and the region. Its strong capital base, close to seven decades of a rich experience
in the market and wide branch network throughout the country for its service and increase its
overall revenue on sustainable bases.

Profitability is the ability to generate profit from sale, whether the sale is tangible (eg- goods)
or intangible (e.g. paid for knowledge), whether a service or a product. Profitability is a
potential of a venture to be financially successful. This may be assessed before entering in to
a business or it may be used to analyze a venture that is currently operating. Although it may
be found that one set factory is not likely to be successful or has not been successful. It may

1
not be necessary to abandon the venture. It may instead be feasible to change operational
factor such as pricing or costs, there are 3 basic situations that can describe a business
financial situations. It can be profitable, it can be breakeven, or it can operate at loss. In most
case an organization goals is to make profit. Without profitability, the business will not
service in the long run so measuring current and past profitability and projecting future
profitability is very important. It is measured with income (money generate from the activity
of a business) and expenses (cost of resource used up by the activity of a business
(http://avami journals). Profitability of a firm is affected by different factors such as degree of
competitive , strength of demand, state of economy, substitutes of product or service, the
degree of cost(variable), a firm with high fixed cost, if the firm can price discriminate,
amount of sales, determination of pricing, and excess of expenses over revenue/income

Assessment of factor affecting the profitability of commercial bank of Ethiopia Bure branch
has advantage for the development of organization by identifying what factor are affecting
the growth of profitability, the level of service quality, investment development expenditure
and what are initiated in the organization.

The study will be hope to indicate the low of market through, in depth investigation and
identification of factor, which affects profitability commercial bank of Ethiopia.

In this study, the main focusing area that the study will be concerned about is identification of
factor, which affects profitability of commercial bank of Ethiopia in case study of Bure
branch, which have an effect on the banks operation, and profitability.

1.2. Statement of the problem

The goal of every business organization can be divided into two; that is profit maximization
and wealth maximization. Since managers are evaluated by operational efficiency and
effectiveness, their choice is to increase the firm’s profitability. The firm profitability is
affected by internal and external factors. Internal factors include shortage of capacity, fund
raising problem, and lack of qualified employees. Externally, profitability may be affected by
level of competition, shortage of raw material, governmental rule, economic instability,
political situation, environmental factor, socio-cultural changes and technology. (Financial
management 10th edition)

In business world there are so money factors affecting the profitability of business
organization. Identification of this factor has a great significant for successful operation of the
organization.

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According to Dessalegn Mulugata (2012) concluded that the basic determinant factors which
affect the profitability of CBE include, low customer satisfaction and customer handling,
poor time management habit in providing bank service and luck of well trained and skilled
employees. But some areas of determinant factors of profitability such as, lack of proper asset
utilization and capitalization by CBE, lack of credit worthiness of customers and lack of
awareness of customers’ about borrowing system are uncovered areas of the study. So this
paper tries to identify and investigate on issues which are still uncovered factor affecting
profitability of CBE in Mehal bure branch. The researcher want to fill the gap on the factor
affecting profitability of CBE. So the researcher initiated to conduct such study in order to fill
such gap by improving the above problems. The researcher was raised the following basic
question that should be answered in this course of the study.
1.3. Research Question
1 What is the level of competiveness and the quality of service offered?
2 How customers feel about the bank service?
3 What is the effect of competition for the profitability of the bank?
4 What are the problems in relation to credit service as compared to other bank?
1.4. Objective of the study
1.4.1. General objective of the study
The general objective of the study is to assess the factors that affect the profitability
commercial bank of Ethiopia Mehale bure branch and to come up with possible solution for
these factors.
1.4.2. Specific objective of the study
In light of the above general objective of the study, the specific objective of the study will be:
 To identify the effects of competitors bank on the market share
 To evaluate the extent of customer service of the bank and investigate the level
customer satisfaction
 To analyze the factor affecting profitability of the banks
 To examine the contribution of different banking services for the profitability of the
bank

1.5. Significance of the study

Since the objective of the study is to assess factors affecting the profitability of CBE, and the
researcher tries to identify the factors that affect the profitability of commercial bank of

3
Ethiopia, Mehal bure branch; the study attempts to identify those factors; competitors bank
on market share, the extent of customer service of the bank and investigate the level of
satisfaction and other factor. Therefore, the researcher proposes solution based on gathered
relevant information for the management of banks about existing and changing environment.
This finding also will be used as a base for further research findings on the area.
1.6. Scope of the study
The study is conducted on factors affecting profitability of Commercial bank of Ethiopia,
Mehal bure branch. The study is limited only in assessing the specific factors and problems
that affect the profitability of CBE because of time and finance shortage, so it is impossible to
cover each and every operation commercial bank in Ethiopia.
1.7. Limitation of the study
The following limitations were factors, which affect or limit the significance firm generating
the expected out comes or information. These limitations include unwillingness of managers
to disclose any information; unwillingness to give the financial statement.
1.8. Definition of key terms
Profit: the excess of total revenue over total expenditure.
1.9. Organization of the paper
This study has been organized into four chapters. The first chapter deals with the introduction
of the study, which also consists background of the organization, statement of the problem,
objective of the study etc. the second and the third chapter on review of related literature and
data analysis and interpretation respectively. The last chapter (five) concern with the
summery, conclusion and recommendation.

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 CHAPTER TWO

LITERATURE REVIEW
2.1 Theoretical review

2.1.1. Definition of Profit

Profits is the positive gain from investment a business operation offer substituting for
expenses opposite of loss. www.invest word com. (3880/profit. Audio English net dictionary.

Profit is the excess of returns over expenditure in transaction or series transaction especially
the excess of the selling price to good over their cost.

It is the ratio of profit for a given year to the amount of capital invested to value sales.

This the compensation accruing to entrepreneurs for the assumption of risk in business
enterprise as distinguished from wage or rent http://www. Maerriam-webster.com /dictionary
profit/

2.1.2. Banks Profitability

Like all business bank get profit by earning more money than what they pay in expenses. The
major portion of banks profit comes from the fees that it charges for its service and the
interest that it earn on its assets. Its major expense is the interest paid on its liabilities.

The major assets of bank one its loans to individual, businesses and other organization and
the securities that holds while its major liabilities are its deposit and the money that it borrow
either from other banks or selling commercial paper in the money market.

2.1.3. Profit Measures

The tradition measures of the profitability of any business are return on assets (ROA) and
return on equity (ROE).

Assets are used by businesses to generate income loans and securities are banks assets and
one used to provide most of bank income. However to make loans and to buy securities a
bank must have money which comes privately from the banks owners in the form of bank
capital from depositors, and form money that it borrows from other banks or by selling debt
securities. A bank buys assets primary with funds obtained from its liabilities as can be seen
from the classic accounting equation.

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Assets= liabilities + Bank capital (owners’ equity).

However, not all assets can be used to earn income because banks must have cash to satisfy
cash withdrawal request of customers. This vault cash is held its vaults in other plays on its
premises such as tellers, drawers and inside its automated teller machine (ATMS) and this
earns no inters. A bank must has keep a separate a loan leans loss reserves to cover possible
loss when borrowers are unable to pay back their loans. The money held in a loan loss reserve
account cannot be counted as revenue and thus does not contribute to profit source:
htt/www.federal reserve /2008/ articles/ bank profit/ defanlthtm.

2.1.4. Determinant of profitability

The determinants of bank profitability can be divided in to two main categories namely
internal factor and external factors.

2.1.4.1. Internal determinants

Internal determinants of bank performance can be defined as factors that are influenced by a
bank’s management decisions. Such management effects will definitely affect the operating
results of banks. Although a quality management leads to a good bank, performance it is
difficult if not impossible to assess management quality directly. In fact, it is implicitly
assumed that such a quality will be reflected in the operating performance. As such, it is not
uncommon, examine a bank’s performance interim of those financial variables found in those
financial statements those statement the balance sheet and income statement are the two
principle ones.

I. Balance sheet
The balance sheet is an integral part of financial statements that highlight the financial
position of a bank at a single point in time. It reflects the bank’s management policies and
decisions in the allocation of resources. Balance sheet items are direct indicators of the
earning power and the cost of banks. From the financial statement, a variety of variables
capable of influence the banks performance literature is discerned. The determinants that
receive most attention the banking literature are discerned. The determinants that receive
most attention in the banking literature are costs asset and liability composition and size. As a
measure of bank costs, the capital ratio to be translated in to high profitability. Source
demagogue kunt&Haizingha (1999) & Abreu &medes (2000)

II. Income Statement

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While the balance sheet concentrates on banks financial position the income statement
measure the success of its operation for a given period of time ratio obtained from the
income statement are also known as operation ratio because they structure the management
efficiencies in generating revenue and at the same time countering cost.

One of the most important internal factors that can be constructed from the income statement
is the efficiency in expenses management.

As conventional wisdom suggests the higher the expense of a bank the lesser the bank’s
profitability will be. Source Boure (1989) &siangetal (2003).

2.1.4.2. External Determinants

Eternal determinants or bank profitability are factor that are beyond the control of bank
management. They represent events outside the influence of bank. However, the management
can anticipate changes in the eternal environment and try to position the institution to take
advantage of the external determinants are macroeconomic factors & financial structure
variable. Source Anna P.I Vong.

2.1.5. Factors affecting profitability

Profitability is affected by changes in sale price cost capitalization professionalism operations
& asset utilization.

 Capitalization: refers to the contributed and available capital for the business to meet
future obligations expand the business or improve existing assets.
 Professionalism: treating the vinery as a professional business and something done for
function is very import and for the success of that business.
 Operation: factor affecting vinery profitability and viability include facility
maintenance supply chain management varietal focuses and asset utilization.
 Asset utilization: liven industries significant investment in asset it is important to
make the most out of the assets a winner’s owner through asset utilization. Source 899
Ad amsst.Suitet.

2.1.6. Liability of Commercial Bank

The liabilities of commercial banks are claims omit. These are the items, which from the
item, which from the source of its fund of the liabilities the share capital of the bank is the
first item which, is contributed by this shareholder and is a liability to them.

7
The second item is the research fund. It consists of cumulated resources, which are meant to
meet contingencies such as losses in any year. The bank is required to keep certain
percentage of its annual profit in the reserve fund. The reserve fund is also a liability to
shareholders. The third item comprises both the time and demand deposits. Deposits are the
debits of the bank to its customers. They are the main sources from which the bank gets fund
for investment and are indirectly the source of its income. By keeping, a certain percentage of
its time and demand deposits in cash the bank lends the remained amount on interest. A
borrowing from other banks is the fourth item. The bank usually borrows secured and
unsecured loans from central bank. Secured loans are based on some recognized securities
and unsecured loans out of its reserve funds lying with the central bank.

The sixth item relates to bills for collection. These are the bills of exchange which the bank
collects on behalf of its customer and credits the amount to their accounts. Hence, it is a
liability to the bank on behalf of its customers. These are the claims on the bank which it has
to meet when the bills mature the eight item contingent liabilities relates to those claims on
the bank which are unforeseen such as outstanding for ward exchange contracts claims on
acknowledged debts etc. in the last time, profit and loss are shown profits payable to the
shareholders which are a liability on the bank (M.L JHINGAN).

2.2. Empirical Study

This section provides the relevant empirical review related to the study of factor affecting
profitability of CBE. According to Dietrich, As &Wanzenried,Go.(2011), the coefficient on
GDP per capital indicates that banks in higher per capita income countries are more efficient
in terms of attracting more deposit and generating stronger cash flow than banks in low
income countries. This should not be surprising as countries with higher per capita income
(i.e, more developed countries) tends to generate more savings and hence more deposits. The
provision to total loans ratio is found to have a significant negative impact on banks' return
on assets. Through banks tend to be more profitable when they are able to undertake more
lending activity, yet due to the credit quality of lending portfolios and the general practice in
Macao, a higher level of provision is needed.

According to Raise, D. (2010), interestingly, however, deposit growth (DG) has as negative
relationship with both ROA and ROE; the relationship is not only consistent across different
methods. The result appear to indicate that while deposit financing may be an important
determinant of profitability, some institution may have reached their optimum deposit-Asset
ratio and those seeking to expand their deposit base assertively, with the intention of

8
eventually improving profitability, may have to do so at the cost of rising expense and falling
profitability in the meantime.

According to Santabarbara Do et al. (2009) loan loss provision ratio, liquidity of assets ratio
and overhead ratio have negative correlation. Whereas size has positive correlation confirms
the general accepted idea that bigger banks obtain better result.

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 CHAPTER THREE
Research methodology and design

The researcher utilizes different research method and material to analysis and assess the main
factor that affect the profitability of the organization; CBE in Mehal bure branch.

3.1. Description of the Study Area

3.1.1. Location
Bure is located 400 km north of the capital Addis Ababa and 148 km southwest of Bahir Dar
and is within the Amhara Regional State, Western Gojjam Administrative Zone of Ethiopia.
This town has a longitude and latitude of 10°42′N 37°4′E with an elevation of 2091 meters
above sea level. Burie town has eight kebeles four of them from rural, and the remaining four
town kebeles. This research focuses on four kebeles of the town. In Bure town, there are two
branches of commercial Bank. These Bure branch and Mehal Bure branch. The emphasis in
this study is to analyse the profitability of CBE Mehal bure branch.

3.2. Research Designs

Descriptive Type of Research design used for analysis. Descriptive research refers to set
methods and procedures that describe research variables in which the research method in
Oder to answer who, what, when and how. Because the major purpose of descriptive research
is description of the state of affairs, as it exists at present. Then this study describes and
critically to assess the problem that factor affecting the profitability of Mehal bure branch in
commercial bank of Ethiopia.

3.3. Research Approach

There are three basic approaches to research such as qualitative, quantitative and mixed
approach. The qualitative approach is concerned with subjective assessment of attitude,
opinions and behavior. Quantitative approach is involves collecting and converting data in to
numerical form so that statistics calculation can be made and conclusion drawn. While mixed
approach involves using the method e which appears best suit to the research problem and not

10
getting caught up and philosophical debates which the best approach. The researchers used
both qualitative and quantitative research approach to study factor-affecting profitability of
commercial bank of Ethiopia. Therefore, the researcher used qualitative research approach to
know. Understand and investigate the activity of employees and the management is through
unstructured interview and open-ended questionnaire. Under quantitative research approach,
the researchers used for typical data collection methods through close-ended questionnaire.

3.4. Source of Data

Both primary and secondary source of data will be considered and used in the study. Primary
data collection: the primary data had collected by questionnaires with the employee and
customers. The researchers also focus on this data collection methods because it is preferable
to elaborate the problem, which is state in the basic research question, and to obtain detail
information regarding to research questions.

Secondary data collection: the researcher used different source of secondary data like books,
employee manual and annual report of the bank as secondary sources of data

3.5. Method of data collection

To achieve the objective of the study, the researcher used both qualitative and quantitative
method. Qualitative method gathered from officer and customers of CBE, Mehal bure branch
by questionnaires. In order to get qualitative method both closed ended and open ended
questionnaire. Quantitative method the researchers used for typical data collection methods
through close-ended questionnaire.

3.6. Sampling design

Sample method: In order to complete, the proposed study the researcher used judgmental
sampling method to collect data from groups of manager, top employees and from active
customer.

Sample size: For simplicity of the research, the researcher used 30 active customer and 20
employees out of the 35 employees of CBE Mehal bure branch.

3.7. Methods of data analysis

This section shows the analysis and interpretation of primary source using qualitative and
quantitative methods. The former is used to interpret and analyze the quality of the data
gathered, while the latter is used to analyze the quantified data through tables’ percentages.

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 CHAPTER-FOUR
4. Data Analysis and Interpretation
4.1. Introduction

This section present the results of questionnaires that the researcher has been collected from
the customers and employers, manger and supervisor of commercial bank of Ethiopia in
Mehal bure branch regarding the assessment of factors affecting the profitability of CBE.
Here, the researcher distributed 15 questionnaires to respondents’ to gather appropriate data.

Therefore, this chapter present the information gathered through questionnaires to identify
and investigate the inherent problems of the CBE Mehal bure branch.

Furthermore, to present appropriate analysis interpretation and to present the price value of
the data of the readers some of the questionnaires item are tabulated and presented by using,
table with detailed necessary interpretation.

Note: this chapter has two parts: the first part concerned with assessing customer attitude and
perception towards the bank service and their performance. The second part presents the
employees and management response toward the required issue or response about factors that
affect the bank profitability and its performance.

In order to help the research, 30 questionnaires were distributed to the customers of

commercial bank of Ethiopia but unfortunately, 4 of the questionnaires’ were not answered
and 2 were lost. The analysis below explains findings from the research questionnaires.
Part one: Analysis of questionnaires for customer
4.1.1. Sex distribution of customer
Identification of sex distribution of customers is very important to know the female and male
participation and involvement in the habit of using the banking service and to make an
attempt in knowing who is poor in the habit of using banking service or to develop the habit
of banking in the society as a whole.
Table 4.1: The customer sex distribution
Sex of respondent No. of respondent In percentage %
Male 17 70.8
Female 7 29.2
Total 24 100

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Source: - questionnaires 2023
The above table shows, from the total target respondent of 24 customer 17(70.8%) of
customer are male and only 7(29.2%) of them were females. Thus, from the above result the
researcher can conclude that, the majority of the customers were male and female
participation very low as compared to the male participation.
4.1.2. Age distribution of customers
Table 4.2: Age distribution of customers
Age No. of respondent In percentage %
18-25 9 37.5
26-35 5 20.8
36-50 6 25
Above 50 4 16.7
Total 24 100
Source: questionnaires 2023
From the above table we can understand that most of the bank customers which accounts
for37.5% belong in the age range of 18-25years and this customers are 9 in number, the next
20.8% of the customers belongs to 26-35 years and the number of this customers are 5 in
number and 36-50 years belongs in the percentile range of 25% the number of this customers
are 6 and the remaining 4 customers which are 16.7% are above 50 years and from the
above result one can understand that the majority of the customers of the bank are adults. So
one can also say that this adults which are in the age range of 18-25 are loyal and honest
customers to the bank and if they are treated and if they are given best of banking service
they could become the best bank customers than any other age groups and they could also
advise others to use the bank as their primary choice.
4.1.3. Occupation of customer
Identifying the occupation of customers has much importance. It can help banker in
identifying different types of customers and understand their banking service needs.
Table 4.3 Occupation of customers
Occupation of customer No. of respondent In percentage %
Employees 10 41.70
Traders 5 20.8
Merchant 6 25
Other 3 12.5
Total 24 100

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Source: questionnaires2023
The above table shows that most of target customers, which are the employees, constitute
41.70% and are 10 in number, the next customers who comes next to the merchant with 6
customers and 25% range, then comes the traders accounting for 20.8% and with the number
of 5 customers. Respondents who were included in other occupationaccounts12.5percentage3
in number.
4.1.4. Customer service and satisfaction
Banks are financial institutions with many function: they accept deposit and make loan, issue
credit like letter of credit and traveler cheque, accept bill of exchange give safe custody of
valuable, documents, money transfer, service, saving account current/demand service loan
service and to identify the kind of the banking service mostly used by customers.
Customers of the bank were asked questions about the services they use and their response
were summarized below.
Table 4.4. Service by bank
s.no Item No of respondent In percentage%
1 What kind of service do you use?
Saving account 12 50
Money transfer account 4 16.7
Current account 3 12.5
Loan service account 5 20.8
Total 24 100
Source: questionnaires2023
From the above table the researcher concluded that most of the customers are users of saving
account, which accounts for 50% and 12 in number. Users of loan service account comes
next with 5 customers and accounts 20.8% from the total percentage of customer. Then, users
of money market continues; accounting for 16.7% and 4 customers. Last but not list current
account takes share for 12.5% and 3 customers from the 24 willing respondents. From the
above data, the researcher concluded that most of the customers are users of saving account.

4.1.5. Customers using private bank

Identifying the customers using other private bank or even other bank is very important to the
bank so that it can know its competition as well as to improve the bank and win over people

14
to achieve its goal. It will also help banker in identifying different types of customers and
their banking service needs.
Table 4.5.Satisfaction of customer
No. Item No. of respondent In percentage
%
1 Do you use other private banks?
Yes 18 75
No 6 25
Total 24 100
Source:- questionnaires2023
As the researcher showed on the table above, the 18 respondents (75%) agreed that they use
other private banks but the remaining 6 respondents (25%) answered NO to the question that
they use other private banks.
In addition to the question why they use private banks; the customers were also asked why
they use other private banks. The respondents who use other private banks answered that it’s
because that to use other loan service, to deposit their cash in different places, and better
customer service.
4.1.6. Contribution of bank for customer personal life
Banks play a significant role in every countries economy; because they accept deposit and
make loans. It channelizes funds from people who wants to save their money and to people
who wants to put it for productive purpose. By doing such service banks play a significant
role in improving the standard of living in particular and economic growth in general; to
identify the contribution of the bank for customers personal and business activity, customers
of the bank gave their response and it’s summarized as in the table below.

Table 4.6.Contribution of bank for personal life

No Item No. of respondent In percentage %
.
1 What is the bank contribution for your business
activity and personal life?
saving accounts 7 29.2
money transfer 1 4.2
giving loans for establishing new project 6 25

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 Safety of money 4 16.6
No response 6 25
Total 24 100
Source: questionnaires, 2023
From the above table the researcher concluded that most of customers use saving account
which is 29.5% or 7 customers, then giving loan for establishing new project follows with
25% which are 6 respondents, next to giving loan the activity that follows it is giving safe
place for the money customers deposit with 16.6% or 4 customers. Money transfer accounts
for 4.2% or 1 respondent and the last 6 respondents (25%) from total 24 respondents are
categorized under no response. This shows that we should be reminded that even if the bank
contributes or benefits the customer in the personal life and business activities it does not
mean that customers of the bank are satisfied by the banks service as whole.
4.1.7. Services of bank
Banks provide many services for the community. They play a very important role by
performing the two essential function by depositing and lending money the bank provides
loans by keeping itself as an intermediary to joint depositors and borrowers to, increase
productivity of the country by earning a commission for it service. To identify whether the
customer asked a loan before or not the customers were asked and their responses were as
follows.
Table 4.7. Loan service
No. Item No.of respondent In percentage %
1 Have you ever asked the
Bank for a loan previously?
Yes 10 41.7
No 14 58.3
Total 24 100
2 Have you faced any problem when
you ask for a loan?
Yes 3 12.5
No 21 87.5
Total 24 100
Source: questionnaires, 2023
From the above table one can understand that10 respondents (41.7%) have asked the bank for
a loan and these customers might have been accepted or rejected. This customers answered

16
“NO”, this 58.3% of the respondents were also asked why they haven’t asked and they
mentioned some points like lack of security, lack of awareness about the credit system, long
and complicated process to present legal document that ensure time ownership of properties
to transfer collateral to the bank, high interest amount and fearing the risk of failure to repay
the loan because of periodical change of exchange rate. In connection with to the above
question the customers were also asked if they have faced any problem when they asked for
loan service. 21 customers or 87.5% of the customers responded that they haven’t faced any
problems; but the remaining 3 respondents(12.5%) indicated that they have faced some
problems like that of the bank asking high collateral and taking long and complicated process
to give loan and services.
Again, with related to the above question the customer of the bank were asked their view, to
identify the types of borrowing system they most uses, summarized, and presented below.
Table 4.8 Type of borrowing system
No. Item No. of respondent In percentage %
1 What type of borrowing system do you use?
short term loan 6 37.5
medium term loan 8 50
long term loan 2 12.5
merchandise loan - -
Total 16 100
Source: questionnaires, 2023
According to the above table 3.6, the majority of the customer, which are 8(50%) of the total
borrowers use medium term loans. Then short term are preferred with 37.5% or 6 of the
respondents choosing it. Last but not list long-term loan borrowers with 2 respondents or
12.5% of them choosing. From the above table the researcher concluded that most of the
customer use medium loan term.
In addition to the above question, the customers of the bank were asked how much they were
satisfied by the bank credit system and their response summarized in the table below.
Table 4.9 Customer satisfaction
No. Item No. of respondent In percentage %
1 How much you are satisfied by the bank
credit system.
very much 10 62.5
Little 5 31.25

17
 Unsatisfied 1 6.25
Total 16 100
Source: questionnaires, 2023
From the above table researcher understand the majority 62.5% of the customers were
satisfied by the bank credit service and 5 of the respondents fell that the bank needs to work
more if it wants to satisfy its customers and these respondents choose little satisfaction with
31.25% from the total respondents. 1 respondent (6.25%) of the customer was unsatisfied by
the bank credit service. So the researcher conclude that the bank more or less satisfies the
majority of its customer.
In relation to the above question, the customers were asked whether if they have repaid their
loan on timely basis or not. The respondent’s answered they all have repaid their loan at
specified period, from these the researcher concluded that the customers were honest of their
promise and also have played a great role in the profitability of bank.
4.1.8. Types of securities
Analysis of a customer experience of borrowing and their level of satisfaction on credit
service is already done. Banks usually secure their loan in one way or another. In some case a
bank grant loan on a personal securities of the borrower. Generally banks requires a collateral
like building (residential), vehicle, machineries, good for merchandise, movable and
immovable properties were required as necessary for the repayment of loan for the
probability of default by the customer to repay the loan.
Part two:- 4.2. Analysis of questionnaires for employees
4.2.1. Sex distribution of employees
Identification of sex of banker is important in the banking service activity to identify females
and males participation
Table 4.10 sex distribution of employees
Respondent /Sex No of respondent In percentage
Male 12 80
Female 3 20
Total 15 100
Source: questionnaires 2023
The above table shows as from the total respondent of 15 employees of the bank 12(80%) of
them are male and 3(20%) of the employees are female, from the above result the researcher
concluded that male employees of the bank accounts a great number having more than twice
of female employees. Therefore, the researcher reminds the commercial bank manager to

18
increase the number of female employees in assumption of increasing female participation as
a whole.
4.2.2. Age distribution of employees
Table 4.11-age distribution of employees
Age No. of respondent In percentage %
18-25 3 20
26-35 8 53.3
36-50 3 20
Above 50 1 6.7
Total 15 100
Source: questionnaires 2023
From the above table can understand that of most the employees of the bank amounting 20%
(3 respondents belongs to 18-25 age group. 8(53.3%) of employees belongs to 26-35 years,
3(20%) of the employees were between 36-50 years and the remaining 1(6.7%) employee
was more than 50 years of age. This data shows majority of the employees of the bank are a
combination of young and mature, which will give the bank both motivation and experience.
Supervision and professional training helps give quality service to customers in order to make
their branch organization competent enough.
4.2.3. Education status of employees
Identifying the education level of employees is very essential and important for the successful
operation of the bank as well as for other business organizations to give quality service
effectively and efficiently. Education level of employees in the CBE of Mehal bure branch
are shown below by using pie chart. Pie chart 4.4.education status of employees
Table: 4.12. Education status of employees
Employees No. of respondent In percentage %
College of diploma - -
BA degree 14 93.3
Master's degree 1 6.7
Total 15 100
Source- questionnaires 2023
The above table shows that most of employees, 14(93.3%) of them are BA degree holder and
1 (6.7%) of them were master's degree holders but there is no graduates with a college of
diploma. The above result shows that the educational status of the banks employee should be

19
considered very good for competition and up grading that low educational background and
training special educations like computer technology and modern banking service training is
important for all employee of the bank.
4.2.4. Position of employees
Table 4.13. .position of employees
Position of employee No of respondent In percentage%
Manager 2 13.3
Supervisor 1 6.7
Employee 10 66.7
Not respondent 2 13.3
Total 15 100
Source: questionnaires, 2023
As shown in the table 2.2. From the total of 15 respondents 2(13.3%) respondents were
manager and 1(6.7%) respondent were supervisors and 10(66.7%) of the respondent are
employees and only 2(13.3%) of the respondent did not give response, from these the
researcher concluded that most of the respondents were the employees.
4.2.5. Duration of employees in the bank
Knowing how long the employees were working in the bank is important to the researcher so
as to help understand how well the employee’s contribution to the bank is inters of
profitability, customer service and sharing their experience to the new employees. Most of
the respondents answered that they have been in the bank for more than 5 years and few
answered that they have worked there for most of their life and insuring their trustworthiness
by dedicating more than 20 years for the bank.
4.2.6. Service rendered by the bank audits Profitability
Banks are organized to perform a number of functions, primarily for the purpose of caring
profit, mostly they attract deposit all kinds current saving accounts and fixed accounts but not
only this, banks also provide loans and advance for those who are in need of it with others
service like money transfer safe custodian with little service charges.
Employees of bank were asked what type of banking services render by the branch to get
profit and the employee’s response were as follows. The bank currently provides deposit
mobilization, money transfer, purchase of foreign currency, money transfer and also provides
loans to various business, individual and institutions with particular emphasis to priority
sector at the economy to give service and to gate profit.

20
Banks earn profit though process of transforming funds and providing service like any other
production process of any other firms.
The profit performance of any bank would be related to many factors including market share
or service quality
To identify whether the bank was profitable or not and to investigate the reason for non-
profitability; employees of the bank were asked and their response were as follows.
Table 4.14.Profitability of the bank
S.no Item No of respondent In percentage %
1 Is the bank is profitable?
Yes 12 80
No 3 20
Total 15 100
Source: questionnaires 2023
Majority of the employee 12(80%) of them think that the bank is profitable and 3(20%) of the
employees think that the bank is not profitable so; the researcher conclude that even though
the bank is profitable it was not as much profitable enough as its objectives.
In relation to the above question, the employees were asked the reason why the bank is not
profitable, the response of the employees was that because of it was newly opened, because
they provide loan for small numbers of customers and high salary payment and people’s habit
in using bank services.
Again with related the above question the researcher asked the employees that what factors
affect profitability of the bank: the response of the employees was that, existence of high
credit interest, existence of large amount of saving account which bears interest for customer
(liabilities to the bank were the main foots and also emergence of new optical competitors,
default loan, risk of import and export accident. From the above analysis the researcher
conclude that having excess of deposit and other factor affect profitability’s.
In addition to above question the employees of bank were asked by researcher to
investigate /to identify/ which service was demanded by customer, and the response obtain
from the employees were as follows.
Table 4.15. Service demanded by customer
S.no Item No of respondent In percentage %
1 Which services are more
demanded by your customer?
Saving deposit 9 60

21
 Demand deposit 5 33.3
Fixed deposit - -
Time deposit 1 6.7
Total 15 100
Source: questionnaires 2023
Majority of the employees or 9(60%) of them said that they use saving deposit, 5(33.3%) the
employees said that customer need demand deposit and the remaining Respondent 1(6.7%)
said that customers wants time deposit. From these researcher conclude that the customer
deposit their money to save from emergency instead of advancing loan.
4.2.7. Types of securities used for advancing loan
Bank frequently secure the loan in one way or another. In some cases, the bank may grant a
loan on personal security of the borrower or on personal securities of other person as
guarantee.
To identify what kind of securities are required by the bank to advance loan employees of the
back were asked and responded as follows; bank requires collateral like buildings both
(nonresidential and residential), Vehicle, motors, small project, bank guarantee like lien,
pledge and etc. From this in the researcher concluded that it was not easy to take loans from
the organization (bank) for ordinary peoples, since such securities are difficult to acquire.
In addition to these, the employee of the bank were also asked the method of charging
securities to cover the advance loan of the bank and the employee responded as; they were
charging based on the national bank of Ethiopia scale /based on legal document of the
customer/ and performance of the government.
4.2.8. Level of competition
Knowing the level of competition will help the bank in understanding who their competitors
are and try to improve its self to bring bank its customers and to attract new customers.

Table 4.16 Level of competition

s.no Item No of respondent In percentage %
1 Level of Competition?
Strong 9 60

22
 Medium 4 26.7
Weak 2 13.3
Total 15 100
Source: questionnaires 2023
From the above table the researcher concluded that 9 respondents (60%) think that there is
strong competition with other banks, and 26.7% think that there is a medium amount of
competition between CBE and the other banks. However, 2 (13.3%) respondents think that
there is weak or no competition at all. There for the researcher can conclude that there are
important things that the bank should improve to present its self-better than the rest of the
banks or organizations.
4.2.9. The impact of market competition on profitability and market share
of the bank.
Private banks which are established in recent year and expanded widely at the current times
has several effects on the market share and profitability of the CBE by providing best service
to customers, computerization of financial information in relation to these employees of the
bank were asked about the effect of market completion on the bank profitability and most of
the respondents answered that there is not much effect in the market share the institution
follows its ways and rules which they think makes the bank better than it’s compotators.
4.2.10. Participation of bank on investment
Participation of bank on investment has significant role for the development of the economy
of the country. Therefore, the banks participation on investment helps to improve the life
standard of the employer by increasing the daily income and opening opportunity of job for
them and it has positive effect on the economy of the country.
In order to identify participation of bank on investment or notes the employees were asked
and their response were as follows

Table 4.17 Participation of bank on investment

S.No Item No. of respondent In percentage %

23
1 Does your bank (organization) is
participate on investment?
Yes 10 66.7
No 3 20
Not respondent 2 13.3
Total 15 100
Source- questionnaires, 2023
Majority of the employee 10(66%) of them said that the bank participates on investment,
3(20%) of the employee said that the bank does not participate on investment and 2 (13.3%)
did not give response. Therefore, the researchers conclude that even though the bank
participation on the investment is not enough and should participate in the investment area so
that it could help the society, the economy, as well as itself.
In addition to the above question employees were asked on what type of investment the bank
participates, if the banks participates on investment and what the reasons behind the bank in
not participating on investment
Table 4.18. Types of investment
S.No Item No. of respondent In percentage %
1 If your answer is yes on what type
of investment your bank invest?
Government security and insurance, 6 24
import and export
Saving and buying of band and 7 28
industries
Source: questionnaires 2023
From the above table the research understand that 7 (28%) of bank participate on selling and
buying bond and industry and the other 6(24%) of the bank respondents answered that bank
participate on government security and insurance and also import and export. Therefore, the
researchers conclude that most of bank participates on selling and buying of bond and
industry.
In relation to the above question employers were asked to identify either the bank was
profitable or not from the investment; the response of them was almost all of them i.e.
13(65%) of them said the bank is profitable.
4.2.11. Impact of capitalization of asset utilization and professional
capitalization asset utilization and professional

24
All these are refers to contribute and available capital for the business to meet future
obligations, expand the business or improve existing assets and it is important to make the
most out of the asset winners, owners, owns through asset utilization. With related to the
above idea the employee were asked the impact of capitalization asset mutilation and
professional and the response of them as follows.
Table 4.19. Effect of capitalization
S.No Item No. of respondent In percentage %
1 Is capitalization, asset utilization and
professionalism affect the profitability the
bank?
Yes 7 70
No 3 30
Total 10 100
Source: questionnaires, 2023
The researcher understands that 7 (70%) of the employees said that it affects profitability of
the bank and 3(30%) of the employee said it does not affect the profitability of the bank. The
researcher concludes that capitalization, asset utilization and professional affect the
profitability of the bank.
In addition of the above question the employees of bank are asked how capitalization asked
utilization and professionalism affect the profit of bank and their response is as increase of
capitalization professionalism and increase of asked utilization there is also increase of
expenditure.
With related to the above question employees are also asked why the profitability of bank is
not affected by capitalization, asset utilization and professionalism and their; response was
the bank manager control every activity of the bank system and upgrading the capacity of the
workers.

25
 CHAPTER FIVE
5. CONCLUSION AND RECOMMENDATION
5.1. Conclusion

All the data analysis and the detailed discussions made in the receding parts of this study are
means to lead the researcher to possible conclusion and recommendation. So that the study of
this paper an attempt has been made to find out or investigate the main factors affect
profitability of the bank. According to the finding, the following conclusion has been made
based on the overall interpretation and data analysis:

 Low customer satisfaction and customer handling, lack of competitive less,

efficiency and time management habit in providing banking service for customer due
to lack of well trained, skilled and professional employees with compared to private
bank.
 Lack profitability of bank because of if term large amount of deposited account, little
number of loan advance existence of high credit interest, and existence of large
amount of saving of credit interest.
 Bank play a great role for the customer personal life and business activities by giving
awareness about the service provided by bank and by saving their many to prevent
them from unexpected dangerous and robbery.
 Bank also provides credit service, which enables the customer to participate in
different investment and this indirectly leader to reduce UN employment in the
country-opening job for job seekers.
 Lack of participative of bank on investment due to the newly established in recent
year and due to their financial status, even though all bank is not participate on
investment, most of the bank participate on investment and maximize their profit this
indirectly leads/help to increase economy of the country.
 Lack of asset utilization and capitalization because bank expect that as asset
utilization and capitalization increase as their also increase as their also increase of
expenditure or cost.
 Low participation of customer to ask bank for loan advance or to borrowing many
from bank because of, lack of awareness about borrowing system of the bank, fear of
failure to repay the loan on the duet data, under valuation of collateral securities by
the bank if the borrower of security and fixed prescription of acceptable collateral by
the bank the customer participation to borrow was reduced.

26
 5.2. Recommendation

In order to give the solution for the problem raised knowing of the cause of problem is
required, the researcher suggest the following recommendation.

 To alleviate the problem related to the employees competiveness efficiency and time
management habit increasing the banking services within a short period of time and to
improve the customer handling technique of employee, the bank has to training to the
employees and upgrade the level of employees competencies.
 It is advisable to introduce new technology, providing best banking products and
service to maximize banks profitability
 It is better to develop the habit of banking in the society and increase the awareness of
the customer to reduce the problem related to large number of deposit and small
amount of loan advance and also by improving the loan policies the bank would be
helpful for increasing the number of loan and advance services user with a view to
overcome difficulties.
 The bank should have to participate on investment by improving his financial statues
and should have to participate on asset utilization by controlling every activity of the
bank system and up grading the capacity of worker. Some measures suggested on
credit service were.
 The customer must able to produce acceptable evidence for verification of value of
asset offered as security.
 Bank should maintain technical staff required valuation of assets to avoid complaints
raised against be determined with reference of the earning capacity of the customers
and by arranging the first installment after a reasonable time gap enable the borrower
to establish his position and strength his repaying capacity.
 Developing the habit of banking and up grading the awareness of the customer and
the society by giving training.
 The bank should take character and technical ability of the borrower, the prospective
of the business or activities the nature and quality of good producer.

27
 REFERENCES

Boure/1989/ and siangetal /2003) (1989) Anna polis.I.Vong.Advantage of external

determinant/8899 adamts.suitet.Asset utilization Mljhingan.liability on the
bank.
Demagogue kunt & Haizingha (1999) and abrev and menbers (2000).
Desselgn mulugata (2012) concluded that the basic determinant factor2006 "mnnyamobera
Ezra Frances".
Dietrich, As& Wanzenrid, Go, (2011) was analyzed switzerland's 453 commercial bank
profitability from the period of (1999-2008) and growth of deposit ratio have negative and
positive both effect on the dependent variable.
http:// arami journals. cost of resource used up by the activity of a business.
http/WWW.federal reserve.Gov/pubs/bulletin/2008/articles/ bank / profit/
detanlthtmBankprofi /defaults. Htmt.
http://WWW. Maerriam-wbster. com/dictionary/profit dictionary profit
Raise,D.(2010).interestingly, deposit growth.
Santabarbard Do et al .(2009) loan loss provision ratio.
WWW. Invest word com. /3880/ profit.Audio English net dictionary
Audio English. Net dictionary.

28
 APPENDIX-I
DEBRE MARKOS UNIVERSITY BURE CAMPUS

DEPARTEMENT OF ACCOUNTING AND FINANCE

Questionnaires to be filed by the customers of Mehal bure branch commercial branch.

Dear respondents:

This questionnaire was designed to collect information for assessing factors affecting
profitability of commercial bank Ethiopia Mehal bure branch. So you are kindly
requested to complete this questioner genuinely and honestly. I promise you that information
you provide will be kept confidentially and used for academic purpose only. I therefore
kindly request you to respond each question. Please fill the question below. Remark no need
of writing your name.

PART -1 QUESTIONARY ABOUT RTESPONDENT’S DATA

1 Genera back ground.

1.1 sex male female

1.2 age 18- 25 26-35 36-50 above 50

1.3 occupations merchant

Farmer

Employee

Traders

If there is other, please specify

----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
-----

2 What kind of service do you use?

29
 Saving account service current demand

Money transfer service loan service

3 Do you use other private bank? Yes No

3.1. If your answer is yes, to question number 3, why?

----------------------------------------------------------------------------------------------------------------
-----------------------

3.2. If your answer is No, to question number 3, why?

-------------------------------------------------------------------------------------------------------

4. If your answer is No, to question number 3 are you satisfied by the bank service?

5. If your answer is yes, what make you

satisfied------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------?

Yes No

6. What is the banks contribution for your business activity and personal
life------------------------------------------------------------------------------------------------------------
---------------------------------------------------?

7. Have you ever asked the bank for a loan previously?

Yes No

8. If your answer is No, to question 5 why you haven’t

asked---------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
-----------------------------------

9. If your answer is yes, to question 5 have you faced any problem when you ask for a loan
before?

Yes No

30
10. If your answer is yes, to question 5 what was a problem?
----------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------

11. What type of borrowing system do you use?

Short term loan

Medium term loan

Long term lone

Merchandize loan

If others, please specify

----------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------

12 .How much you are satisfied by the banks credit system?

Very much

Little

Un satisfied

13. Did you repay your loan to the bank timely? Yes No

14. If yes what type of security of the bank asked you for advancing of a
loan?----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------

31
 APPENDIX –II
DEBRE MARKOS UNIVERSITY BURE CAMPUS

DEPARTEMENT OF ACCOUNTING AND FIANANCE

Questioners to be filled by manager, supervisor and employees of commercial bank Mehal

bure branch.

Dear respondents:

This questioner is designed to collect information from assessing factor affecting

profitability of commercial bank of Ethiopia Mehal bure branch from managers,
supervisors and employees of the bank. I promise you all data you provide will be kept
confidentially and will be used for academic purpose only. I therefore kindly request you to
complete this questionnaire genuinely and honest. Please fill the questions provided below.
Remark no need writing your name.

PART -1 QUESTIONAIRE ABOUT RESPONDENT DATA.

1 General back ground

1.1 sex male female

1.2age 18-25 26-35 36-50 above 50

1.3 education status

College diploma

First degree

Master

1.4 position
Manager

32
 Supervisor
Employee

1.5 For how long have you been working in the bank? ----------------------------------

PART -2 questionnaires about the organization.

2 What type of service does your organization provide to its customers?

-------------------------------------------------------------------------------------------------------
-----------------------------------------
3 Is the bank is profitable? Yes No
3.1. If the answer is NO what is the
reason?------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
-------------------------------
3.2. What factors affect profitability?
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
----------------------------
4. Which services are more demanded by your customer?

Saving deposit Fixed deposit

Demand deposit Time deposit

5. What security or securities are required for advancing loans to customers?

----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------

6. What are the methods used by the bank to cover its loan?
----------------------------------------------------------------------------------------------------------------
---------------------------

7. What is the level of competiveness in the market?

Strong Medium Weak

33
8. What is the effect of market competition in the profitability of the bank?
----------------------------------------------------------------------------------------------------------------
----------------------

9. Is there any decrease in number of borrowers due to the emergence of new

competition?-------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
------------------

9. What is the problem in advancing and repayment of a loan?

----------------------------------------------------------------------------------------------------------------
--------------------------------------------------

10. What is the banks strategies to compete with the competitor to maintain its market
share?---------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------

11. What are the main problems that the bank currently faces? Specify.
----------------------------------------------------------------------------------------------------------------
--------------------------------------------------

12. Is capitalization, asset utilization and professionalism affects the profitability of the bank?
Yes No

12.1 If your answer is Yes

how?----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
-------------------------------------------------------

12.2 If your answer is NO

why-------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
------------------------------------------

34