Determinants of non-performing loans in the case of Development Bank of Ethiopia
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Date
2020-09
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A.A.U
Abstract
Banks are very important institutions in the financial system of any country and play a fundamental role in the global economy. This study intends to investigate determinants of nonperforming loans in Development Bank of Ethiopia.The study was used secondary data. To analyze the determinants of NPL the study was used Auto-regressive distributed lags (ARDL) and Error correction model (ECM) were applied. Return on asset, bank size, interest rate, GDP growth, inflation rate, Credit to private sector and loan to deposit ratio were the independent variables. According to the result from the total of seven macroeconomic and bank specific independent variables lagged value of NPL, return on asset, GDP, bank size and interest rate were found to negative and statistically significant effect on NPLs of Development Bank of Ethiopia while loan to deposit ratio, inflation rate and credit to private sector were found to be statistically insignificant effect on NPLs of DBE. In the short run from all independent variables bank size, GDP and return on asset were found statistically significant effect. The ECM coefficient reveals that short run deviation from equilibrium is adjusted towards long run equilibrium by the speed of 24.71 percent. Development Bank of Ethiopia management organs should increase return on asset to improve the loan performance in the organization.
Description
A Research submitted in Partial Fulfillment of the Requirements for the Award of the Degreeof Masters in Business Administration
Keywords
Development Bank of Ethiopia, Non-Performing loans