Determinants of Non-Performing Loans: Evidence from Commercial Banks in Ethiopia
No Thumbnail Available
Date
2017-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
This study examined the bank-specific and macro-economic determinants of Non-performing
loans (NPLs) of Ethiopian commercial banks. The study adopted a quantitative research
approach. The study uses data collected from the National Bank of Ethiopia, Central
Statistical Agency and financial statement of nine commercial banks. Data covers the period
from 2006-2016. Descriptive and multiple regression analysis employed to analyze the
unbalanced panel data. Findings of the study show that return on equity and capital adequacy
have negative and significant impact on NPLs. Whereas, loan loss provision and loan to
deposit have positive significant relationship with NPLs. The finding of this study is important
since once identifying the determinants of NPLs might enable management body to make
appropriate lending policies that prevent the occurrence of NPLs. The study recommended as
bank managers better emphasize the management of current assets specially loans.
Furthermore, preferable for commercial banks to concentrate or diversify their credit portfolio
by calculating risk relative to its return in order to increase return on equity and to reduce the
level of nonperforming loans. Also the study suggest for future researcher to validate the
consistency of the result and provide additional results by including other variables like
priority sector loan, monitory policy and sensitive sector’s loan.
Key words: Nonperforming loans, bank specific factors, macroeconomic factors
Description
Keywords
Nonperforming loans, Bank specific factors, Macroeconomic factors