Comparative Analysis of Financial Performance of Public and Private Banks(Case Study)

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COMPARATIVE ANALYSIS OF FINANCIAL PERFORMANCE OF PUBLIC AND PRIVATE BANKS [IN THE CASE OF SELECTED PRIVATE AND PUBLIC BANKS]

A SENIOR ESSAY SUBMITTED TO DEPARTMENT OF ACCOUNTING AND FINANCE, IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF BACHELOR OF ARTS DEGREE IN ACCOUNTING AND FINANCE.

Prepared by: Ruth Alemayehu

ADDIS ABABA UNIVERSITY
COLLEGE OF MANAGEMENT, INFORMATICS AND ECONOMIC SCIENCE
SCHOOL OF BUSINESS AND PUBLIC ADMINSTRATION
DEPARTMENT OF ACCOUNTING AND FINANCE

JUNE, 2011
ACKNOWLEGMENT
First of all I would like to thank the almighty God for HIS help in every aspect of my life. Without his help I would not be here. I would like to forward my deepest gratitude to my advisor ATO Abraham Demissie who has provided me with guidance and direction diligently. I would also like to thank the managers of the four banks especially the manager of commercial Bank of Ethiopia for their support in giving the information required. Last but not least I would like to thank my family for being there for me whenever I need them and for their unconditional support and encouragement throughout my life.

ABSTRUCT
This paper is about measuring the financial performance of selected public and private banks. These banks were selected randomly in a non-probabilistic method. The information to help this comparison is mainly dependent on secondary data like annual reports. It has tried to assess the level of profit and market share of these selected private and public banks using different performance measurement methods specifically ratios. It has used profitability ratios, activity ratios and financing ratios to help measure and compare their performance. The result of this comparison is that private banks have better performance when compared to the public banks. But still there was some weak part found on the side of the private banks which needs to be improved. Finally this paper has made some conclusions concerning the results and has tried to give some recommendations which need to be followed by both private and public banks considered in this paper.

Acronyms

CBE = Commercial Bank of Ethiopia
DBE = Development Bank of Ethiopia
DB S.C. = Dashen Bank Share Company
NIB S.C. = Nib International Bank Share Company
ROA = Return on Asset
NIM = Net Interest Margin
NNIM = Net Non Interest Margin
AU = Asset Utilization
ROE = Return on Equity
NPM = Net Profit Margin
NOM = Net Operating Margin
CR = Current Ratio
FATR = Fixed Asset Turnover Ratio
TATR = Total Asset Turnover Ratio
DR = Debt Ratio

LIST OF TABLES
Tables page No.
Table 1: Ratio of return on asset
Table 2: Ratio of Net interest margin
Table 3: Ratio of non-interest margin
Table 4: Ratio of Asset Utilization
Table 5: Ratio of Return on Equity
Table 6: Ratio of Net Profit Margin
Table 7: ratio of net operating margin
Table 8: Ratio of bank’s equity multiplier
Table 9: Current Ratio
Table 10: Fixed Asset Turnover Ratio
Table 11: Total Asset Turnover Ratio
Table 12: Debt Ratio

LIST OF GRAPHS
Graphspage No.
Fig. 1: Ratio of Return on Asset
Fig. 2: Ratio of Net Interest Margin
Fig.3: Ratio of Non Interest Margin
Fig.4: Ratio of Asset Utilization
Fig.5: Ratio of Return on Equity
Fig.6: Ratio of Net Profit Margin
Fig.7: Ratio of Net Operating Margin
Fig.8: Ratio of Bank’s Equity Multiplier
Fig. 9: Current Ratio
Fig. 10: Fixed Asset Turnover Ratio
Fig.11: Total Asset Turnover Ratio
Fig.12: Debt Ratio

CHAPTER ONE
1. INTRODUCTION
2.1. Side view of the banking sector(by taking two banks from each public and private as a sample)
The history of commercial bank of Ethiopia goes back to 1942 to the time when state bank of Ethiopia was handling both the commercial banking and central banking. In 1963 the function of commercial from the central bank was separated because a privately owned bank was started. Therefore in...
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