Intellectual capital and bank profitability: the case of Ethiopia

The link between intellectual capital and profitability is a recent topic in banking. This research adds to the literature by examining how intellectual capital affects the profitability of Ethiopian banks. The study analyzes 21 commercial banks in Ethiopia, using panel data from 2010 to 2023 and the system generalized method of moments. The results show that human capital efficiency has the highest mean value of 2.064, followed by structural capital efficiency at 0.542, and capital employed efficiency at 0.175. This means human capital efficiency is the main value-added intellectual component in Ethiopian banks' profitability. Regression results also show that the value-added intellectual coefficient has a positive and significant effect on bank profitability, measured by return on assets and return on equity. Among the components, human capital efficiency and capital employed efficiency both increase profitability, while structural capital efficiency does not have a significant effect. Therefore, human capital and capital employed efficiency rather than structural capital efficiency are what determine Ethiopian banks' profitability. The study recommends that bank management focus on using human and financial resources effectively to boost profitability.