Determinants of Non-Performing Loan of Commercial Banks in Ethiopia
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Date
2022-02-03
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A.A.U.
Abstract
This study Examine the bank Specific bank economic determinants of commercial banks in
Ethiopia .Non-Performing Loan (NPL) has been crucial factor these days in terms of Banking
sector sustainability and profitability. This paper intends to assess factors that may influence
the rising level of nonperforming loans in commercial banks of Ethiopia. The study uses,
Capital Adequacy Ratio and Loan to deposit ratio as specific determinants of nonperforming
loans and Inflation rate, Exchange rate and UN employment rate as macro economic factors.
Panel data from 2008-2018 was taken from published annual reports and NBE data base.
Descriptive Statistics, correlation analysis and random effect panel least square regression was
used to analyze data through STATA 14 application software. The analysis leads to the
conclusion that reduced level of nonperforming loans leads to increased banks performance. It
was also concluded that Exchange rate and unemployment rate has got a negative significant
impact on non-performing loans. On the other hand the finding showed Insignificant
relationship loan to deposit, capital adequacy and inflation rate. The study suggests that,
commercial banks should consider specific and the macro economic factors before extending
loans