Assessing the Effect of Operational Efficiency on the Performance of Private and State Owned Commercial Banks in Ethiopia

The main objective of the study was to examine the effects of operational efficiency on the performance of state owned and private commercial banks through examining the financial profile to explore the effects of operational efficiency on the performance. The study used secondary data, which was annual report of the selected banks (for the year 2012 to 2017). From both government and private owned banks, only those which are in the operation for at least twelve years are included in the sample then the data was analyzed using descriptive statistics. The result of this study indicated state owned banks have shown superior performance than private banks. Out of seven ratios used in performance analysis, five ratios support state owned banks for superior performance as compared to private banks and also operational efficiency has great impact on performance of commercial banks. The study recommends that all commercial banks which are included in the study ought to focus on improving operational efficiency in order to improve their performance and competitive advantage in the banking industry.

Keywords: commercial banks, operating efficiency, performance