Determinants of private banks performance in Ethiopia: A partial least square structural equation model analysis (PLS-SEM)

Figures & data

Figure 1. Conceptual model.

Source: Developed by researcher, 2022

Table 1. Research variables and indicators

Variables	Indicators	Symbol	Formula
Dependent Variable
Bank Performance	Return on Asset	ROA	Net inсоme befоre tаx/Tоtаl Аssets
	Return on Equity	ROE	Net income before tax/Total Equity
	Net Interest Margin	NIM	(Interest income-interest expense)/ Ave.Earning Assets
Independent Variable
Bank Specific	Liquidity	Liquidity	Total Deposit/ Total Asset
	Bank Size	Bank Size	Natural logarithm of Total assets
	Operational Efficiency	OE	Total Cost(expense)/ Total Income
	Asset Quality	AQ	Loan loss provision/ Total loans
	Capital Adequacy	CA	Total Capital/Total Asset
Industry Specific	Asset Share	Asset Share	The total asset of the bank/ Total asset of all banks
	Deposit Share	Deposit Share	Total deposit of each bank/Total deposit of all banks
	Loan Share	Loan Share	Total loan of specific bank/Total Loan of all banks
Macroeconomics factors	Average exchange rate	Ave.ex.rate	Yearly Average exchange rate
	Inflation Rate	Inflation	Inflation Rate (%)

Source: Developed by Researcher (2022)

Figure 2. PLS-SEM outer model.

Source: Study PLS-SEM Results (2022)

Table 2. Assessment of loading and multicollinearity

Outer Loading	Bank-Specific Factors	Industry-Specific Factors	Macroeconomic Variables	Bank Performance	VIF
Asset Share	0.945				4.073
Deposit Share	0.699				1.415
Loan Share	0.932				3.678
NIM				0.721	1.492
ROA				0.922	2.044
ROE				0.760	1.487
Outer Weight
AQ		0.270			1.611
Bank Size		0.880			1.000
CA		−0.037			1.078
Liquidity		0.216			1.214
OE		−0.243			1.440
Ave. ex rate			0.603		1.000
Inflation			0.809		1.000

Source: Study Panel Data (2010–2021)

Table 3. Construct reliability and validity

	Cronbach’s alpha	Composite reliability (rho_a)	Composite reliability (rho_c)	The average variance extracted (AVE)
Bank Performance	0.727	0.898	0.899	0.649
Industry Specific	0.831	0.898	0.899	0.750

Source: Study Panel Data (2010–2021)

Table 4. Discriminant validity of constructs

Fornell-Larcker criterion	Bank Performance	Bank Specific	Industry Specific	Macro Level
Bank Performance	0.805
Bank-Specific Factors	0.407
Industry-Specific Factors	−0.094	0.461	0.866
Macroeconomic Variables	−0.097	0.258	0.056
	Heterotrait-monotrait ratio (HTMT)
Industry-Specific Factor	0.178

Source: Study Panel Data (2010–2021)

Table 5. PLS predict relevance

	Q^2predict	PLS-SEM_RMSE	PLS-SEM_MAE	LM_RMSE	LM_MAE
NIM	0.052	0.015	0.012	0.015	0.012
ROA	0.202	0.013	0.011	0.013	0.011
ROE	0.048	0.013	0.010	0.014	0.011
Asset Share	0.070	1.509	1.110	1.653	1.144
Deposit Share	0.016	3.143	1.407	3.246	1.416
Loan Share	0.121	2.279	1.709	2.332	1.651
Inflation	0.042	8.944	7.099	9.009	6.822
Ave. ex rate	0.350	5.073	4.075	4.908	3.936

Source: Study Panel Data (2010–2021)

Table 6. Path coefficients assessment

Hypotheses	Path Coefficient	Beta (β)	R^2	f^2	Inner VIF	T-test	P values	Decision
H1	Bank-Specific Factors -> Bank Performance	0.649	0.330	0.461	1.364	3.090	0.002	Supported
H2	Bank-Specific Factors -> Industry-Specific Factors	0.457	0.194	0.235	1.050	3.785	0.000	Supported
H3	Industry-Specific Factors -> Bank Performance	−0.359	0.330	0.155	1.241	3.531	0.000	Supported
H4	Bank Specific Factors -> Industry Specific Factors -> Bank Performance	−0.164	NA	NA	NA	2.262	0.024	Supported
H5	Macroeconomics Variable -> Bank Performance	−0.289	0.330	0.112	1.110	2.379	0.017	Supported
H6	Macroeconomics Variables -> Bank-Specific Factors	0.308	0.095	0.105	1.000	1.787	0.074	Not supported
H7	Macroeconomics Variables -> Industry Specific	−0.072	0.194	0.006	1.050	0.494	0.622	Not supported

Source: Study Panel Data (2010–2021)

Note: NA means not applicable to compute.

Table A1. Gaussian Copula (GC) Test

Path Endogeneity (GC) test	Original sample (O)	Sample mean (M)	Standard deviation (STDEV)	T statistics (|O/STDEV|)	P values
GC (Bank Specific Factors) -> Bank Performance	0.400	−0.188	0.692	0.578	0.564
GC (Bank Specific Factors) -> Industry-Specific Factors	−0.861	−0.431	0.761	1.131	0.258
GC (Industry Specific Factors) -> Bank Performance	0.587	0.569	0.358	1.639	0.101
GC (Macroeconomics Variables) -> Bank Performance	0.218	0.260	0.392	0.555	0.579
GC (Macroeconomics Variables) -> Bank-Specific Factors	0.580	0.354	0.442	1.312	0.190
GC (Macroeconomics Variables) -> Industry-Specific Factors	−0.156	−0.149	0.381	0.410	0.681

Source: Study Panel Data (2010–2021)