Credit Risk and Technical Efficiency in Ethiopian Commercial Banks
No Thumbnail Available
Date
2022-06-22
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U
Abstract
This study examined the relationship between credit risk and technical efficiency of Ethiopian
commercial banks in the period from 2012/13 to 2017/18. The two-stage data envelopment
analysis model was used to obtain efficiency scores. The estimated result of the constant returns
to scale assumption indicates that the commercial bank of Ethiopia and Dashen bank are
inefficient, whereas Debub Global bank, Addis International bank, and Zemen bank are more
than efficient compared to the other. Similarly, the estimated result of variable return to scale
assumption showed that Commercial bank of Ethiopia and Dashen bank are shown to be
inefficient, whereas Addis International bank, Development bank of Ethiopia and Debub Global
bank are found to be more efficient. It is also found that, in compared to the commercial banks
included in the study, united bank and Debub global bank are the most scale efficient
commercial banks in Ethiopia, whereas Bunna international bank and Ethiopian Development
Bank are the least scale efficient banks. In the second stage to estimate the relationship between
credit risk and technical efficiency score of commercial banks as we used Tobit model. The
finding indicates that credit risk has negative and statistical significant effect on Ethiopian
commercial bank’s technical efficiency. The higher the credit risk is the lower the efficiency
scores and those commercial banks that manage to maintain their continuity in the market and
diversify their products had higher efficiency scores, however generating greater benefits to
their shareholder. Furthermore, the findings also indicate that liquidity risk, return on asset and
capitalization have positive and significant effects on the technical efficiency score of the
commercial banks under study, whereas ownership structure have negative and significant
effects, but market share is a positive and insignificant variable under this study.