The Effect of Non Performing Loan on Profitability of Ethiopian Private Commercial Banks
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Date
2022-06-30
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A.A.U
Abstract
NPL has been considered to be an important issue on the profitability of banks. This study empirically to examine the effect of NPL on profitability of Ethiopian private commercial banks.
The study used balanced panel model in examining the regression model and collect data from six private banks covering the period of twenty one (21) consecutive years, 2000-2020. To this end, the study employed a quantitative research approach by combining documentary analysis. The study used panel data techniques specifically fixed effect model on the regression analysis and used E-view8 software. The study used one dependent variable return on asset (ROA), five independent variables that are NPL ratio, cost income ratio, loan recovery rate, bank size and loan to deposit ratio. The regression result show that NPL ratio has negative and significant impact on profitability and loan recovery rate and bank size have also positive and significant impact on profitability. However, cost income ratio and loan to deposit ratio have negative and insignificant impact on profitability. The research concluded that NPL has significant effect on the profitability of Ethiopian private banks. Hence, the study recommend in support of each variables for Ethiopian private banks to give due attention on NPL to enhance their profitability significantly.