Effects of Economic Policy Uncertainty on Credit Risks and Banks’ Lending Decisions: Evidence from Ethiopian Commercial Banks
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Date
2023-07-04
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A.A.U
Abstract
The objective of this study is to explore the effects of economic policy uncertainty on credit risk
and lending decision of 12 Ethiopian commercial banks for the period spanning from 2010–
2021. In order to analyze the relationship between credit risk measured by non performing loan
ratio and lending decisions measured by growth rate of loan and economic policy uncertainty
controlled bank specific and macroeconomics variables, the study employed two fixed effect
(within) panel regression Models. The empirical results revealed that economic policy
uncertainty has a significant positive effect on credit risk (nonperforming loan ratio), and a
significant negative effect on lending decisions (growth rate of loan). Furthermore, bank size
and gross domestic product have significant negative relation with non performing loans and
have significant positive relationship with growth rate of loans. However, lending interest rate
has a significant positive relationship with nonperforming loan and has a significant negative
link with lending decision of Ethiopian commercial banks.