Determinants of Non-Performing Loans: The Case of Commercial Banks in Ethiopia
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Date
2023-06-09
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A.A.U.
Abstract
This study aims at investigating the determinants of non-performing loans in Ethiopian commercial banks from 2006 to 2021. The study used panel data on fourteen commercial banks obtained from the annual reports of each of the commercial banks and the national bank of Ethiopia. A fixed effect model was employed to analyses the determinants of NPLs. Results from the study indicate that capital adequacy ratio, loan growth, and return on assets have a negative and significant influence on NPLs. This study holds importance in bridging the research gap, as it is vital to understand the causes of NPLs to address the issue effectively. The study recommends that bank managers need to maintain a strong capital adequacy ratio, foster sound management practices to maximize return on assets, and establish comprehensive credit assessment and monitoring systems. These measures will help mitigate the risks associated with non-performing loans and support a stable banking sector, enabling banks to thrive and prosper in increasingly competitive financial markets.