The Effect of Asset Diversification on Financial Performance of Commercial Banks of Ethiopia

Asset diversification is plays a significant role to improving the level of banks profit. The aim of the study to examine the effect asset diversification has influence the financial performance of commercial banks in Ethiopia. In order to achieve aim of this study the researcher used quantitative research approach by adopting purposive sampling methods and explanatory type of research design. The study used secondary data which were collected from financial statements of sampled commercial bank over the periods of 2014/2015 to 2023/2024. Both descriptive and inferential statistics as well as random effect regression model were applied to analyze the panel data. The model was used to examine the relationship between financial asset, cash and cash equivalent, equity investment, non performing financial asset, fixed asset, loan and advances and intangible asset with bank performance indicator that is return on asset. The study used Stata15 software for data analysis. The result reveals that the regression model significantly predicts the outcome variable with a p-value of 0.000. The result of Random effects model reveals that cash and cash equivalent, loan and advances, equity investment, and intangible asset had positive and statistically significant effect on the financial performance (profitability) of commercial banks. Whereas, financial asset, fixed asset and non-performing asset had negative and statistically significant effect on the financial performance (profitability) of commercial banks in Ethiopia. Based on results the researcher recommended further diversification of bank product their assets to loan and advances, cash and cash equivalent and equity investment for better profitability.4