NAVIGATING THE PATH TO FINANCIAL EXCELLENCE: AN IN-DEPTH EXAMINATION OF ETHIOPIAN PRIVATE COMMERCIAL BANKS USING THE DUPONT MODEL
This study presents an in-depth examination of the financial performance of Ethiopian private commercial banks from 2017/18 to 2021/22, employing the DuPont Model as a primary analytical tool. The model decomposes Return on Equity (ROE) into three pivotal components: Net Profit Margin (NPM), Gross Yield on Assets (GYA), and Equity Multiplier (EM), offering a holistic view of bank efficiency, effectiveness, and leverage. The study's objectives were to assess and compare the financial performance of these banks, analyze influencing factors, and provide actionable recommendations. Our analysis revealed significant variability in the performance metrics across the banks. This variability reflects diverse management strategies and operational efficiencies, further influenced by external factors such as the COVID-19 pandemic and regional conflicts. Comparative and trend analyses highlighted differences in financial practices and performances among banks, while regression analysis underscored the significant influence of NPM, GYA, and EM on ROE. Tests for multicollinearity and heteroskedasticity affirmed the regression model's reliability. The study concludes that the Ethiopian private commercial banking sector is characterized by its diversity in management practices and its resilience to external factors. It suggests the need for tailored strategies, considering each bank's specific circumstances and strengths for optimal performance. The study's insights are valuable for stakeholders, including bank managers, investors, and policymakers, who guide informed decision-making and strategic planning in the banking sector.