The main objectives of the study are to determine the factors that influence commercial banks’ profitability in Botswana and make recommendations for management decision making and policy objectives. These determinants have been categorized into internal and external factors. The internal factors refer to bank-specific factors that can be controlled by the banks’ management. External factors considered are the macroeconomic factors such as GDP, inflation and money supply. A panel data consisting of the three large-sized commercial banks was used to represent the commercial banks in Botswana. The data was analyzed over the period of 2004-2013, using ordinary least square technique to estimate fixed effects regression model. Return on Assets (ROA) was used as the dependent variable or measure of profitability. The bank-specific factors considered are: Capital Adequacy (CAD), Operating Efficiency (OEF), Liquidity (LQD), Asset Quality (AQT) and Bank Size (NLA). The empirical results indicated that CAD, OEF, AQT and NLA are positively related to bank profitability. However, the relationship between ROA, OEF and AQT was found to be insignificant. Moreover, LQD, GDP and money supply were found to have a significant and negative relationship with bank profitability. Inflation was reported to have a positive but insignificant relationship with bank profitability.

functioning banking sector. Efficient management of banking operations aimed at ensuring growth in profits and efficiency requires up-to-date knowledge of all those factors that influence the profitability of banks. The profitability of a commercial bank can be reviewed at the micro and macro levels of the economy. Profit is a necessity for a competitive banking institution at the micro level; hence, the aim of the banks’ management is to achieve as much profit as possible (Mishkin, 2013, p. 265). At the macro level, a sound and profitable banking sector is better able to withstand negative economic shocks and contributes to the stability of the financial system. According to Jefferies (2009), during the period of credit crunch and subsequent global financial crisis, the basic structure of the Botswana banks’ balance sheet was sound and the banking system’s deposit as a whole was relatively stable.

Botswana banking industry is an increasingly important sector of the economy in terms of the supporting role it plays in the development of other sectors of the economy. The sector plays a very important role in the Botswana Stock Exchange (BSE), where it dominates market capitalization and has been a driving force in the growth of the BSE in recent years (Tacheba, 2009).