Browsing by Author "Belaynew, Berhanu"

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    Macroeconomic Factors Affecting Credit Risk in the Ethiopian Commercial Banks: An Autorgressive Distributed Lag (ARDI) Approach
    (A.A.U, 2020-06) Belaynew, Berhanu; Atnafu, Gebremeskel (PhD)
    The main objective of the study was to investigate the macroeconomic factors affecting non-performing loans in the Ethiopian commercial banks. The study employed Auto Regressive Distribute Lagged (ARDL) model employed to quarterly data for the period of 2001/02Q1 to 2018/19Q4 to investigate the existence of short-run and long-run relationship between non-performing loans (NPLs) and set of macroeconomic variables. Additionally, the study employed the variance decomposition (VDC) and impulse response functions (IRF‟s) were used to test for the response of non-performing loans to innovations in macroeconomic variables. The major findings are that there is a long run relationship between non-performing loans (NPLs) and real GDP growth rate, growth of broad money supply and terms of trade are negatively and statistically significant. Inflation rate, lending interest rate and unemployment rate are found be statistically insignificant in the long run. The short run results also shows that the real GDP growth rate, growth of Broad money supply, and terms of trade affect non-performing loans negatively and are statistically significant while the Inflation rate affects non-performing loans positively and statistically significant. In additional to this result, unemployment rate and lending interest rate found statistically insignificant in the short run. Further the variance decomposition results show that innovations in terms of trade highly contributed to the forecast error variance of non-performing loans in the Ethiopian commercial banks compared to other explanatory variables. The study suggests that, commercial banks should consider the macroeconomic factors before extending loans and the government can also play important role in improving the level of NPLs in the economy by influencing the macroeconomic variables. Also the study suggest for future researcher to explore the other macroeconomic factors affecting credit risk. Few of the variables that can be used in the future studies are gross fixed capital formation, growth in investment, consumption, exchange rate and loan to GDP ratio.