Determinants of Non-performing Loans: Empirical Study on Ethiopian Commercial Banks
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Date
2013-05
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Journal Title
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Publisher
Addis Ababa University
Abstract
This study examines the bank-specific and macro-economic determinants of Non-
performing loans (NPLs) of commercial banks in Ethiopia. The study adopts a mixed
methods research approach by combining documentary analysis (structured review of
documents) and in-depth interviews. More specifically, the study reviews the financial
records of eight commercial banks in Ethiopia and relevant data on macroeconomic
factors considered for the period from the year 2000 to 2011. The findings of the study
show that, loan growth, financial performance, operational efficiency, effective exchange
rate, inflation rate and gross domestic product have negative and statistically significant
relationship with banks’ NPLs. On the other hand, variables like bank size and state
ownership have a positive and statistically significant relationship with banks’ NPLs.
However, the relationship for average lending rate and income diversification were
found to be statistically insignificant. The study
suggests
that
focusing
and
reengineering the banks alongside the key drivers of NPLs could reduce the
probability of loan default in Ethiopian commercial banks
Description
Keywords
Empirical study, Ethiopian commercial