The Impact of Credit Risk Management on Financial Performance of Private Commercial Bank in Ethiopia

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This study aimed at examining the impact of credit risk management on the financial performance of private commercial banks in Ethiopia. The study used secondary data for eight private banks which stayed in the industry more than ten years among sixteen private commercial banks which is functional at the moment in Ethiopia banking industry. The Data to do the analysis is obtained from banks annual report, National bank report. In this study correlation and multiple regression analysis done with random effect model and E-Views 9 software used for the regression of the panel data. Random effect panel regression was used for the data of eight private commercial banks in Ethiopia for the sample covered the period from 2007 to 2016.Return on Asset and Return on Equity were dependent variables while non-performing loan, capital adequacy, bank size, leverage ratio, credit interest income ratio, loan loss provision ratio and operation cost efficiency have taken as an independent variables. The results of panel data regression analysis showed that credit risk indicator variables of Loan loss provision (LLP), Capital adequacy ratio (CAR), credit interest income (CIR) and size of the bank (SIZE) had positive and statistically significant effect on financial performance of private commercial banks in Ethiopia. And credit risk indicator of Nonperforming loans (NPLs), Leverage ratio (LR) and operational cost efficiency (OCE) had negative and statistically significant effect on banks’ financial performance. The study suggests that Ethiopian commercial banks should/need to work more to improve their financial performance and to reduce their credit risk. Moreover, banks should exert additional effort to properly manage their loan portfolio in order to enhance their profitability.


A Thesis Submitted To: - The Department Of Accounting and Finance College Of Business and Economics Presented In Partial Fulfillment of the Requirements for the Degree of Master of Science in Accounting and Finance


Commercial Banks, Ethiopia, Financial Performance, Non-performing loans