The Effect of Credit Risk Management on the Financial Performance of Banks- Case Study on Private Commercial Banks in Ethiopia
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Date
2021-04
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A.A.U
Abstract
Banks are the largest financial institutions that mobilizes deposit and lends to those in shortage of it to enhance profitability and economic growth. Those Loans and advances are the dominant asset which generate the largest share of revenue and represent greater risk of credit which is the most significant risk faced by banks. Hence, the management of credit risk which is a must affects the performance of banks.
The general objective of the study is to investigate the effect of credit risk management on the financial performance of private commercial banks of Ethiopia. In line with this, the effect of Bank specific, Industry Specific and Macroeconomic variables on the performance of private commercial banks in Ethiopia are studied. The research collects data from the annual reports of banks, NBE, MoFED and CSA for all the sixteen private banks from 2013 to 2019. Multiple regression analysis with a random effect model are analyzed through Eviews 9 software.
The finding of the regression results reveals that, bank specific factors like NPL ratio, CAR and TLTD and industry specific factor like IS have impact on the performance of private commercial banks in Ethiopia, while macroeconomic variables have insignificant impact. Generally, there found a positive relationship between credit risk management and banks performance.
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Keywords
Financial Performance, Credit Risk Management, Macroeconomic variables