Corporate Finance

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Browsing Corporate Finance by Author "Anwar Nurhsien"

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    Comparing Credit risk Determinants: Interest free banks VS Conventional Banks in Ethiopia
    (Addis Ababa University, 2025-08) Anwar Nurhsien; Tenkir Seifu (PhD)
    This study utilized secondary panel data collected from 80–100% of Ethiopian conventional and Interest free banks, analyzed using a fixed effects regression model in E-Views, guided by the Hausman test results. The research aimed to compare the determinants of credit risk (measured as Non-Performing Loans, or NPL) for both conventional and Interest free banks in Ethiopia. Based on empirical and theoretical reviews, it was hypothesized that NPL would exhibit:  Positive significant relationships with real interest rate and credit growth rate.  Negative significant relationships with GDP growth rate, capital adequacy ratio, net interest margin, income diversification, and return on assets.  No significant relationship with bank size and market concentration ratio, for both banking models. Key findings: For conventional banks, the credit growth rate had a positive significant relationship with NPL. Conversely, return on assets, net interest margin, GDP growth rate, and bank size exhibited negative significant relationships. The market concentration ratio showed no significant relationship with NPL, confirming expectations. However, variables such as real interest rate, capital adequacy ratio, and income diversification unexpectedly lacked significant relationships with NPL. For Interest free banks, real interest rate and capital adequacy ratio showed positive significant relationships, while bank size had a negative significant relationship with NPL. As anticipated, the market concentration ratio demonstrated no significant relationship. However, other variables, including GDP growth rate, credit growth rate, net interest margin, income diversification, and return on assets, did not display significant relationships with NPL, contrary to initial expectations. These results highlight both similarities and differences in the determinants of credit risk for Interest free and conventional banks. Variations can be attributed to differences in economic environments, banking practices, and regulatory frameworks. The findings offer valuable insights for policymakers to consider when designing policies and regulations for the banking sector.