Lending and Cash Required Reserve: Empirical Evidence from Ethiopian Commercial Bank (original) (raw)
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Determinants of Commercial Banks Lending: Evidence from Ethiopian Commercial Banks
The study was mainly aimed to confirm the main determinants of commercial bank lending in Ethiopia by using panel data of eight commercial banks in the period from 2005 to 2011. It tested the relationship between commercial bank lending and its some determinants (bank size, credit risk, gross domestic product, investment, deposit, interest rate, liquidity ratio and cash required reserve). Seven years financial data of eight purposively chosen commercial banks were used for analysis purpose. Ordinary least square (OLS) was applied to determine the impact of those predictor variables on commercial bank lending. The result suggests that, there is significant relationship between commercial bank lending and its size, credit risk, gross domestic product and liquidity ratio. But deposit, investment, cash required reserve and interest rate does not affect Ethiopian commercial bank lending for the study period. The study suggests that commercial bank have to give more emphasis to credit risk and liquidity ratio because it weakens banks loan disbursement and leads a bank to be insolvent.
The objective of the study was to examine the determinants of lending behavior in selected commercial banks in Ethiopia. The study applied explanatory research design for which the data was collected from secondary sources from the selected commercial banks' audit annual report as well as the national bank of Ethiopia financial reports. The study used descriptive, correlational and regression analysis to analyze the data. The result indicates there is positive and significant association between the liquidity ratio and lending behavior. However, the four factors; CAR, CR, AQR and VD have negative relationship with lending behavior. The regression result also revealed that liquidity ratio, credit rate and asset quality ratio have significant effect on lending behavior of the selected commercial banks. finally, the researcher forwarded some recommendations for the management of the banks.
Capital adequacy implies the conventional assessment of the minimal level of capital, according to certain parameters, which reflect the dimension of banking activity and of related risks, capable to provide a correlation between the supposed obtained benefits and potential loss caused by a certain risk level. Since Capital adequacy ratio (CAR) is the ratio that is set by the regulatory authority in the banking sector, and this ratio can be used to test the health of the banking system. Thus, this study examines the effect of bank specific (Bank Size, Deposit to asset ratio, Loan to asset ratio, Loan to deposit ratio, Return on asset, Return on equity, Loan loss provision) and macroeconomic determinants (Gross domestic product and inflation) on capital adequacy ratio of Ethiopian Private Commercial Banks. In order to investigate these issues a quantitative method research approach is utilized, by using documentary analysis. More specifically, the study uses five years (2016-2020) data for fourteen private commercial banks in Ethiopia. The study used multiple linear regression models to determine the relative importance of each independent variable using OLS to estimate the relationship between CAR its determinants by STATA 13 econometric software. The findings show that bank size, return on equity, loan to asset ratio affect capital adequacy ratio negatively whereas return on asset, loan loss provision affect capital adequacy ratio positively. Hence, it is recommended that to be sure that bank have adequate adequacy reserve, commercial bank and national bank of Ethiopia should give attention to the risk associated with bank size, caring bank loan and deposit initiating to increase their return on their asset and to manage their equity return.
Determinants of Capital Adequacy of Ethiopia Commercial Banks
2016
The main objective of the study is to investigate empirically the determinants of CAR in Ethiopian commercial banks. The study period covered the year 2004-2013 on which eight banks are selected based on availability of ten years data. The study use secondary data which is gathered from annual reports of the banks under study. Panel data regression is used in this study and analyzes relationships between bank specific variables: SIZE
Determinants of Capital Adequacy of Commercial Banks in Ethiopia
2017
This thesis aimed to see the determinant factors for capital adequacy using 14 selected banks operating in Ethiopia from 2011 to 2015. The paper conducted different estimation to see the relationship between the dependent variable, Capital Adequacy Ratio (CAR) and independent Variables which include Bank size (SIZE), DAR (Deposit to Asset Ratio), Loan to Asset Ratio (LAR), Loan to Deposit (LTD), Return on Asset (ROA), Return on Equity (ROE), Loan Loss Provision (LPR), and macroeconomic variables (gross domestic product and inflation).
An appropriate credit risk level is a crucial decision for all business organization to be taken by business organization for maximization of firm value and continued their growth. The main objectives this study was to examine the effects of liquidity and other controlled variables on credit risk of commercial banks of Ethiopia. Accordingly, the main concern of this study was to examine empirical evidence from firm specific factors such as, liquidity, loan growth, bank size, profitability, bank capital and macro variable like Inflation on credit risk of Ethiopian banking industry. To accomplish this objective the research used panel data analysis and only secondary data were used. All banking business was included in the sample frame if they have ten years annual report. Statistical tests like descriptive statistics, correlation, and specific classical linear regression model assumption was tested. A relationship was established between firm specific factors and credit risk measured by provision for loan loss ratio of the banks for a period of ten years. The random regression results show that firm profitability, bank Size, and inflation has significant impact on credit risk of Ethiopian banking industry for the study period. Whereas firm liquidity, loan growth and bank capital has insignificant impact on credit risk of banks. From this finding the researcher recommended that the sample of Ethiopian commercial banking industry should give attention for significant variable that will result higher credit risk such as profitability and size of banks. At the same time care should be take other variable even if they have insignificant impact on credit risk.
Factors Affecting Liquidity of Selected Commercial Banks in Ethiopia
2015
This study examines the bank-specific and macro-economic factors affecting bank liquidity for eight commercial banks in Ethiopia, covering the period of 2002-2013 by using balanced fixed effect panel regression. To this end, the study adopts a mixed methods research approach by combining documentary analysis and in-depth interviews. The findings of the study show that capital strength, interest rate margin and inflation had statistically significant and positive relationship with banks' liquidity. On the other hand, loan growth had a negative and statistically significant relationship with banks' liquidity. However, the relationship for profitability, non-performing loans, bank size and gross domestic product were found to be statistically insignificant. The study suggests that focusing and reengineering the banks alongside the key internal drivers could enhance the liquidity position of the commercial banks in Ethiopia. Moreover, banks in Ethiopia should not only be concern...
Determinants of Banks Liquidity: Empirical Evidence on Ethiopian Commercial Banks
2015
Liquidity creation is the main concerns of commercial banks because it is crucial for its existence. Hence this paper intended to assess bank specific factors that affect liquidity of Ethiopian commercial banks. The data covered the period from 2007-2013 for the sample of ten commercial banks in Ethiopia and used secondary data. Bank specific variables were analyzed by employing the balanced panel fixed effect regression model and the result of the study revealed that capital adequacy and profitability have statistically significant impacts on liquidity of Ethiopian commercial banks while bank size has positive and statistically significant impact on liquidity. Nonperforming loan and loan growth were found to be statistically insignificant/ has no any impact on liquidity of Ethiopian commercial banks for the tested period. Key word: liquidity determinants, balanced panel data, Ethiopian commercial banks
Factors Affecting the Capital Adequacy Ratio of Private Banks in Ethiopia
International Journal of Banking, Risk and Insurance, 2022
The objective of the study was to assess the factors affecting the capital adequacy ratio of the private banks in Ethiopia. Data was gathered from the financial documents of all 16 private banks in Ethiopia over eight years, from 2013 to 2020. The independent variables were ROA, ROE, bank size in terms of total asset, loan loss provision to total loan, total capital to total asset, total debt to total equity, and liquid asset to total asset. The dependent variable was the capital adequacy ratio. The random-effects model was used, based on the Hausman test of a specification, to analyse the panel data regression model. The result indicated that ROA, bank size in terms of total asset, total capital to total asset, total debt to total equity, and liquid asset to total asset were statistically significant, at a 5% level of significance, in affecting the capital adequacy ratio of the private banks in Ethiopia.
Factors Affecting Deposit Growth of Commercial Banks in Ethiopia
2019
The purpose of this study is to determine the factors affecting deposit growth of commercial banks in Ethiopia. In order to achieve this objective descriptive and econometric analyses were performed. The target populations were all commercial banks operating in Ethiopia. Accordingly, six commercial banks were purposively selected for this study. The panel dataset for the study used consisted annual data spanning from 2001 to 2017. The data were gathered from National Bank of Ethiopia and the purposively selected commercial banks' annual reports. The dependent variable used in this study was commercial banks' deposit growth. The explanatory variables used in this study were advertising and publicity, bank branches, exchange rate, inflation, loan and advances, money supply and nominal gross domestic product. Different diagnostic tests namely test for zero mean of error terms, homoscedasticity, no autocorrelation, no multicollinearity and normality were conducted to check the appropriateness of the model. The diagnostic results show that none of the classical linear regression model assumption is violated. To determine the effects of the independent variables on the dependent variable fixed effect model was used The Fixed-effect model results show that bank branch, exchange rate, loan and advances and nominal gross domestic product have significant positive effect on commercial banks' deposit growth. However, inflation and money supply found to have significant negative effect on bank deposit growth. The effect of advertising and publicity was found to be positive and insignificant. Thus, based on the findings the study suggests that commercial banks should open more branches and expand their loan giving capacity in order to increase their deposit. Further, the government should work seriously to increase the country's gross domestic product.