Determinants of Commercial Banks’ Lending: The Case of Selected Private Commercial Banks in Ethiopia
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Date
2020-03
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A.A.U.
Abstract
The study was aimed to investigate the determinants of commercial banks’ lending on the selected private commercial banks in Ethiopia based on Bank specific, regulatory and macro-economic factors of the country. In order to achieve research objective the researcher used quantitative research approach. The analyses were performed using panel data derived from the financial statements of sampled Ethiopian commercial banks and macro-economic data from National bank of Ethiopia. Ordinary least square (OLS) technique was applied to determine the impact of those predictor variables on commercial bank lending. In the study volume of deposit, cash reserve requirement, legal reserve requirement, non-performing loan, liquidity ratio, capital adequacy ratio, equity investment, and GDP of the country were considered as independent variables whereas commercial banks’ lending or loan and advances was considered as dependent variable. The result of the regression analysis reveals that Ethiopian commercial banks’ lending is determined by volume of deposit, non-performing loans, legal reserve requirement and GDP growth, positively. On the other hand capital adequacy, legal reserve requirement, equity investment and liquidity have insignificant impact on Ethiopian commercial banks’ lending or loan and advances. The study suggests that Ethiopian commercial banks should enhance their strategies in mobilizing deposits from the public and have to strive to strength their asset quality. In addition commercial banks’ should administer their lending activity by considering internal factors, existing economic situation, competitive environment, regulatory measures and their target customers.
Description
A Thesis Submitted to the Department of Accounting and Finance, College of Business and Economics, Addis Ababa University, In Partial Fulfillment of the Requirement for Degree of Masters of Accounting and Finance
Keywords
legal reserve requirement, lending, non-performing loans, volume of deposit