Macroeconomic factors affecting loan collection Performances of the development bank of Ethiopia

No Thumbnail Available



Journal Title

Journal ISSN

Volume Title


Addis Ababa University


Macroeconomic variables like real Gross Domestic Product (GDP), domestic saving, foreign currency supply and capital formation are major indicators that show the level of economic performance of a country. This study investigates effects of such macroeconomic variables on loan collection performances of the Development Bank of Ethiopia to show to what extent these variables contribute towards loan collection endeavor of the Bank. The research methodology used for the study is a quantitative research approach by using primarily VAR model. The raw data on loan collection and macroeconomic variables used for the study were collected from DBE and the NBE including observations of 42 years on annual bases ranging from 1975 to 2017. Results of the study were obtained by making unit root test, co-integration test, estimations of VECM, etc. Accordingly, the study indicates that while GDP and foreign currency supply have positive and significant effects on loan collection, domestic saving has positive but insignificant to influence loan collection performances of the Bank in the long run. Capital formation, on the other hand, has negative but insignificant influence on the dependent variable. Growths in macroeconomic variables like those included in this study and their smooth operations are important indicators for the healthy economic movements. Thus, growth in GDP would have been reflected on the loan collection performances of DBE due to the fact that the growth of the economy and smooth operations of the macroeconomic variables stimulate all microeconomic factors to operate in similar direction with the macroeconomic variables. Accordingly, findings of the study indicate that the growth in real GDP, for instance, does not confirm this general truth due to the fact that, despite successive growth in the economy of Ethiopia, reports show that NPLs ratio of DBE is growing and surpassing the appetite set by supervisory organ of the Government. Hence, in line with the previous studies, DBE should give prior attention and work towards to its own internal and customer specific factors, in addition to macroeconomic variables so as to address the problems that the bank faces related to loan collection performances of projects financed by the Bank.


A Thesis Submitted to Addis Ababa University College of Business and Economics in Partial Fulfillment of the Requirements for the Degree of Masters in Business Administration with Specialization in Financial Services


Domestic saving, Foreign currency supply, Loan collection performance