Exploring The Impact Of Asset Diversification On Financial Performance:(An Explanatory Study Of Ethiopian Commercial Banks)

The study was mainly intended to explore the impact of asset diversification on financial performance of thirteen purposely selected Ethiopian commercial banks with seven consecutive years of data for a period 2011–2021 considering the availability of data. An explanatory research design had been employed to determine the impact of asset diversification on financial performance. In the mean time, quantitative approach was used to construct empirical model. banks’ financial performance measured using return on asset and four variables used to measure asset diversification were; cash holding, fixed asset, foreign deposit and NBE Bills which twas predictor variables. Again, Size of the bank was considered as control variable. And then, Pooled panel regression model employed to analyze the collected data. The result pretend that, cash holding has a positive but marginally insignificant effect on financial performance, fixed asset and foreign banks deposit have positive and significant effect on financial performance and NBE Bills has negative and significant effect on banks financial performance. Ultimately, it had been concluded that, asset diversification has a significant effect on financial performance in the Ethiopian commercial banking sector. Hence, a researcher suggest that, banks need to optimize their asset diversification so as to realize maximum profit and minimize cost of fund based on the result of the study.