Effect of Loan Portfolio Management on Financial Performance of Ethiopian Commercial Banks
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Date
2021-01
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A.A.U
Abstract
The purpose of the study was to examine the effect of loan portfolio quality on the
financial performance of selected commercial banks in Ethiopia. Witha dataset from the
annual reports for all the17Ethiopiancommercial banks for 5 years from 2015 to 2019
G.C.Panel data regression and correlation analysis was used to analyze the relationship
between dependent variable and independent variables. The regression analysis was
facilitated with the aid of EViews9 statistical software. An ordinary Least Square (OLS)
method is used as a technique in order to test the parameters of the model assumptions.
Return on Equity (ROE) is used to proxy financial performance whiles Loan to asset ratio
(LAR), Liquidity (LIQ), loan Loss Provision (LLR), size of total Deposit (LogD), Capital
Adequacy ratio (CAR) and Loan Growth (LGR) is used as proxies for loan portfolio
management indicator. The result has indicated that Loan Growth has an inverse
relationship with profitability while Capital Adequacy ratio and loan Loss Provision
have a positive association with profitability of the commercial Banks. The study suggests
the National bank to continually respond to the socioeconomic impact banks may have as
well as the Banks need to work proactively in developing various product portfolio to
meet the demand of their respective customers
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Keywords
Financial Performance, Ordinary Least Square