Determinants of Non- performing Loans: Evidence from Commercial Banks in Ethiopia
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Date
2018-02
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Addis Ababa University
Abstract
The study adopted a quantitative research approach and used data collected from the National
Bank of Ethiopia, Central Statistical Agency and financial statement of nine commercial banks
from 2006-2017. Descriptive and random effect multiple regression analysis are employed to
analyze the unbalanced panel data. Findings of the study show that return on equity and capital
adequacy have negative and significant impact on NPLs. Whereas, loan loss provision and loan
to deposit have positive significant relationship with NPLs. The study also showed that GDP,
NIM and UM are statistically insignificant factors of NPLs. The finding of this study is
important since once identifying the determinants of NPLs might enable management body to
make appropriate lending policies that prevent the occurrence of NPLs. The study recommended
bank managers to better emphasize on the management of current assets specially loans.
Furthermore, it is preferable for commercial banks to concentrate or diversify their credit
portfolio by calculating risk relative to its return in order to increase return on equity and to reduce the level of nonperforming loans.
Description
A Thesis submitted to the department of Accounting & Finance, AAU, in partial fulfillment
of the requirement of the Degree of Master of Science in Accounting & Finance
Keywords
Bank specific factors, Macroeconomic factors, Nonperforming loans