Determinants of Private Commercial Banks Lending in Ethiopia
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Date
2020-06
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A.A.U
Abstract
The objective of the study was to investigate the determinant factors of private commercial
banks lending in Ethiopia. Balanced panel data was collected from audited annual financial
statements of private commercial banks, National Bank of Ethiopia (NBE) and Ministry of
Finance (MoF) to analyze the bank-specific determinants as well as the macroeconomic
determinants of private commercial banks lending. The collected balanced panel data was
analyzed with descriptive statistics, and multiple linear regression analysis. Random effect
panel regression model was used for the data of ten private commercial banks in Ethiopia for
the sample covered the period from 2009 to 2018. Ten explanatory variables that affect banks
lending were selected and analyzed with STATA 11 econometrics software package. The
results of panel data regression analysis showed that Capital adequacy ratio (CAR), Volume
of deposit (VD), Return on Asset(ROA) and Lending interest rate(LIR) had positive and
statistically significant effect on bank’s lending .Credit risk(CR), Cash reserve requirement
(CRr) and Liquidity ratio(LQr) had negative and statistically significant effect on bank’s
lending. Management quality (MQ), Gross Domestic Product (GDP), and Inflation rate
(INFr) had negative correlation but statistically insignificant with commercial banks lending.
The study suggests that Ethiopian private commercial banks should/need to work more to
improve their volume of deposit, capitalization, reduce their credit risks and consider
macroeconomic environment when extend loans.
Description
A Thesis Submitted To The School Of Graduate Studies Of
Addis Ababa University In Partial Fulfillment Of The
Requirements For The Degree Of Master Of Science In
Accounting And Finance
Keywords
determinants, lending, loan and advances, private commercial banks