Determinants of Commercial Banks’ Lending: Evidence from Ethiopia
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Date
2011
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Addis Ababa University
Abstract
The study was aimed to investigate the effect of Bank specific,regulatory and Macro
economic factors on Ethiopian commercial banks’ lending or loan and advances. In order
to achieve research objective the researcher used quantitative research approach. The
analyses were performed using panel data derived from the financial statements of sampled
Ethiopian commercial banks and macro-economic data from National bank of Ethiopia.
Ordinary least square (OLS) technique was applied to determine the impact of those
predictor variables on commercial bank lending. In the study bank size, volume of deposit,
cash reserve requirement, credit risk, liquidity ratio, lending interest rate, GDP and
inflation of the country were considered as independent variables whereas commercial
banks’ lending or loan and advances was considered as dependent variable. The result of
the regression analysis reveals that Ethiopian commercial banks’ lending is determined by
bank size (asset), volume of deposit and GDP growth, positively and by cash reserves
requirement and liquidity ratio negatively. On the other hand credit risk, lending interest
rate and inflation has insignificant impact on Ethiopian commercial banks’ lending or loan
and advances. The study suggests that Ethiopian commercial banks should enhance their
strategies in mobilizing deposits from the public and have to strive to strength their asset
size. In addition commercial banks’ should manage their liquidity and administer their
lending activity by considering internal factors, existing economic situation, competitive
environment, regulatory measures and their target customers.
Key words: lending, cash reserve requirement, volume of deposit, liquidity ratio, bank size
Description
Keywords
lending, cash reserve requirement, volume of deposit, liquidity ratio, bank size