Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.10, No.22, 2019 1 The Effect of Global Financial Crisis on the Financial Performances of Commercial Banks of Ethiopia Minyahil Assefa Department of Accounting and Finance, Jigjiga University, Ethiopia, PO box 1020 Abstract The 2007 financial crisis, triggered at the United States of America, affected many financial institutions around the world. In Ethiopia, some scholars argue that Commercial banks of Ethiopia (CBE) are not vulnerable for global financial crisis. Because, Commercial banks of Ethiopia are owned by state and domestic investors and the country does not allow foreign banks to operate in the country. In line with this argument, this study sought to investigate the effect of global financial crisis on the financial performances of commercial Banks of Ethiopia. The study used judgmental sampling method, taking in to account the age and accessibility of complete audited financial statements. The sample size of the study was two state owned and five private commercial banks. The study dominantly used secondary data. So as to triangulate results, the study also employed primary sources of data. To measure and analyze performance of commercial banks during the periods 2004-2010, CAMEL model and SPSS statistical tools were employed. The study found that the banks had had liquid and quality asset during the crisis. But among the growth mean deference of six variables of international banking related activities, only two variables (Deposit in Foreign Banks and Gain from Foreign Currency Translation and Exchange) had positive growth mean during the global financial crisis; the change was not statistically significant at 5% significance level. Whereas loan dispersed for importers (LI), interest income from foreign deposit, ROA, total revenue from international banking actives had been decreased by 214%, 217%, 16% and 39% respectively. These changes were statistically significant at 5%. Thus the study concluded that, despite CBE were owned by state and domestic investors and international banks has been prohibited to operate in Ethiopia, the financial crisis significantly affected the financial performances of Ethiopia banking industry. Keywords: Global Financial crisis, financial performance, commercial banks of Ethiopia, CAMEL DOI: 10.7176/RJFA/10-22-01 Publication date: November 30 th 2019 1. Introduction anks serve as back bone to the economic growth of countries, which facilitate the proper utilization of financial resources by intermediating deficit and surplus unites. But, banks are exposed to a variety of risks that are growing more complex now a days. Once the system failed, the whole economy will collapse as the economic down turn of 2007 which was resulted from financial system failure in United States of America which was spread out widely around the world. Therefore these factors increasingly urge the need of more frequent banking examination particularly on their performance. The measurements of commercial bank performance have been researched well and received increased attention over the past years (for example Kouser, 2012; Reddy, 2012; Ashamu, 2012; Kumbirai and Webb (2010), Prasad, 2012; Webb, 2003; Tarawneh, 2006; Kiyota, 2009; Samad, 2004). The crisis, although, started as a result of events in America housing market, it has spread to all regions of the world with direct consequences on global trade, investment, remittances, exchange rates and growth. Adamu, (2009) state that around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and even government in the wealthiest nation have had to come up with rescue packages to bail out their financial system. Ashamu (2012) declared that the impacts of this global financial crisis on Africa are both direct and indirect. The direct effect was felt mostly through the financial sector. In Ethiopia, some scholars argue that Commercial banks of Ethiopia are not vulnerable for global financial crisis. They usually put the following two reasons. First, Commercial banks of Ethiopia are owned by state and domestic investors. Second, the country does not allow foreign banks to operate in the country. On the other hand, others argued that banks of Ethiopia are not totally guaranteed from risks in international financial crisis. Because, today the banks are aggressively involve in international banking activities and strongly linked with foreign banks throughout the world. International banking operations contributed significantly to the banks' total income through earnings on foreign exchange dealings and commission and service charges on imports and outward money transfers. For example, Wegagen bank and Bank of Abyssinia earned 463.3 million birr or 55% of its total income and 300.8 million birr or 49% of its income from International Banking Activities (IBA) respectively in 2010 1 . Furthermore, commercial banks of Ethiopia maintain good business relationships with various well-known international banks throughout the globe 1. 1 National bank of Ethiopia annual report in 2011. B