The Moderating Effect of Gross Domestic Product and Mediating Effect of Inflation on the Relationship of Credit risk and Performance of Private Commercial Banks in Ethiopia
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Date
2022-03
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A.A.U
Abstract
objective of thestudy was toillustratetherelationshipbetween credit risk andperformance of
private commercial banksinEthiopia includingthe moderating and mediatingeffects of GDP and
inflation respectively. A panel datafromtwelve selectedprivate bankscoveringthesixyearperiod(
2016-2021)wasanalyzed.The traditional profit theory has beenemployedtoformulate
profit,measuredby ReturnonAsset (ROA),asa functionof Non-performingloanrate
(NPLR),theratioof Pre Provisionprofit toNet loanandLoan toTotal Assetsmeasuresof credit risk
andmediatingandmoderatingeffectswereconsidered. Panel data
regressionmodelanalysisviageneralleastsquares(GLS), estimatorswasused to estimate the
function.Bothexplanatoryandinferentialresearch approachhas been
usedtoanalyzetherelationshipsof
adependentvariablewithexplanatoryvariablesandtheeffectsofmediatingandmoderating variable.
After analyzing the data, the two variables NPLand LTA has shown a significant positive
andnegative relationshipwithROA respectively. Preprovisionprofitofbanksshowsthattherewaspositiveandstatisticallyinsignificantrelationshipwithperf
ormance. Additionally,GDP has a significant moderate effect on PPPLandLTTA on the other
handinflationmediateNPLandLTTA variablesofbanksinthisstudy. The study concludes that,
increasingloanisnot an indicator ofincrement inperformance ofprivate banks. So, otherincome
generating waysmustbe considering in order to increasingperformance.
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Keywords
credit riskPerformance, moderation, mediation