Determinants of Bank Lending: The Case of Private Commercial Banks in Ethiopia
No Thumbnail Available
Date
2023-06-08
Authors
Askalemariam Abera Fenta
Journal Title
Journal ISSN
Volume Title
Publisher
A.A.U.
Abstract
Lending is a major service rendered by banks as a result Loan and advance is the largest income-generating asset of banks. The main objective of the study was to examine determinants of bank lending in Ethiopia private commercial banks. The study addressed the knowledge gap by focusing on private commercial banks. This study used secondary data which was collected from annual reports and audited financial statements of private commercial banks and annual reports of national bank of Ethiopia (NBE). Explanatory type of research design was employed because of the nature of research problem and issues to be addressed. The data used for this study was seven years’ panel data which was collected from 2015-2021 of ten private commercial banks. Purposive sampling technique was applied to select samples to help the researcher to identify those banks based on time and availability of data. The study applied quantitative approach to understand the relationship of variables, which affect bank lending. Variables included in this study was volume of deposit, liquidity, credit risk, lending interest rate, bank concentration, GDP, inflation and exchange rate as independent variables and the dependent variable is total loan and advance. Fixed effect regression model was used to investigate how those predictor variables affect bank lending. The result of fixed effect regression model revealed that volume of deposit, GDP, inflation and exchange rate have positive and significant effect on bank lending. On the other hand, credit risk has negative and significant effect on lending. Liquidity has negative but insignificant effect on lending. The remaining variable bank concentration has positive and insignificant effect on banks’ lending. The study recommends that Ethiopian private commercial banks accounts to work more to enhance themselves in collection of huge deposits, and minimize credit risks. Furthermore, banks give concern for the macroeconomic variation in the country.
Description
Keywords
Lending, Private Commercial Banks, Determinants