Determinants of Financial Risks of Private Commercial Banks In Ethiopia (original) (raw)
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Optimal portfolio diversifications, establishing a comprehensive credit limit and loan pricing system as well as Credit risk management strategy, policy and procedu res without a clear picture of Credit risk drivers is just considered as putting money on fire. Therefore, analyzing the lin k between the bank specific factors and credit risk indictor is indispensably required using a panel data set over the period of 2006-2012. The three Panel data estim ation method, pooled OLS regression, fixed effect and random effect mode l, w re used for extracting good result and F-test ascertained the appropriateness of Pooled OLS regression model. Its result revealed that the credit growth and return on equity had statistically significant negative impact on Credit risk indicator of the large Ethiopian private comm ercial banks. However, inefficiency, and deposit rate had statistically in significant positive influence on the Credit risk i nd cator. It means that inefficient bank as well as th...
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The study aims to investigate the factors that contribute to credit risk in Ethiopian commercial banks, considering both macroeconomic and bank-specific factors. The research utilized multiple regression models, a quantitative research approach, and explanatory research designs. A purposive sample technique was used to select 10 commercial banks for the study, and secondary data from audited financial reports were analyzed. The findings of the study reveal a significant positive relationship between credit risk and several variables, including bank size, profitability, efficiency, capital adequacy, and inflation. Conversely, there is an inverse relationship between credit risk and both loan growth and currency rates. Surprisingly, the study found that neither GDP nor interest rates have a significant impact on credit risk. Based on these findings, the study provides recommendations for Ethiopian commercial banks. It suggests maintaining adequate levels of capital, avoiding business ...
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.
Bank- Specific Determinants of Credit Risk: Empirical Evidence from Ethiopian Banks
Research Journal of Finance and Accounting, 2014
While credit risk is one of the main risks of banks and affects the development of the financial system, little study is done to examine its determinants. This study examined the bank-specific determinants of credit risk in Ethiopian commercial banks. The quantitative research approach was adopted for the study. A balanced panel data of 10 commercial banks both state-owned and private owned for the period 2007 through 2011 has been analyzed using random effects GLS regression. The regression results revealed that credit growth and bank size have negative and statistically significant impact on credit risk. Whereas, operating inefficiency and ownership have positive and statistically significant impact on credit risk. Finally, the results indicate that profitability, capital adequacy and bank liquidity have negative but statistically insignificant relationship with credit risk.
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This study attempts to reveal the relationship between credit risk and financial performance of commercial banks in Ethiopia. In order to investigate these study quantitative research approach is employed based on documentary analysis. A panel data from six selected commercial banks covering the ten-year period (2007-2016) is analyzed within the fixed effects model on regression analysis and using E-view8 software. The study used one dependent variable return on asset (ROA), four independent variables that are: nonperforming loan to total loan and advance ratio (NPLTLA), loan provision to total loan and advance ratio (LPTLA), total loan and advance to total deposit ratio (TLATD) and the ratio of non-performing loan to loan provision (NPLLP) as measures of credit risk. Both descriptive statistics and regression analysis specifically fixed effects model were used to analyze the relationships of the depended variable with explanatory variables. The regression result show that non-perfo...
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The objective of study was to assess the impact of credit risk management on the performance of private commercial banks in Ethiopia. The sample in this study consisted of six private commercial banks for a 14 period (2000 to 2013) were collected from audited financial statement of respective banks and National Bank of Ethiopia. The collected data were analyzed by using panel data regression model and the result showed that credit risk management measures: capital adequacy ratio, total loan ratio, non- performing ratio, bank size and liquidity ratio have a significant impact on the performance(ROA and ROE) of Private commercial banks.The study recommended that the banks’ credit risk management should give due attentionon capital adequacy and management of loan portfoliosin order to minimize the high incidence of non-performing loansand their negative effect on profitability of commercial banks. Keywords : Credit Risk Management, performance, private Commercial Banks in Ethiopia.
Impact of Credit Risk on the Performance of Commercial Banks in Ethiopia
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The objective of the study is to empirically examine the quantitative effect of credit risk on the performance of commercial banks in Ethiopia, considering variables related to lending activities, over the period of 5 years (2008-2012). The empirical investigation uses the accounting measure of Return on Assets (ROA), which is the dependent variable, to represent Banks’ performance. The study fundamentally involves both descriptive and econometrics techniques. The econometrics method used in the study basically involves assessing the impact of selected internal variables, the provision to total loans, loan to total asset, credit administration (cost to total loans) and natural logarithm of total asset (Economies of scale), on the performance of the banking sector. To this end multiple linear regression model is used to measure the relative weighting of the independent variables above on a dependent variable. Basic descriptive statistics was appliedfor trend analysis. A nonprobabilit...
The impact of credit risk on profitability performance of commercial banks in Ethiopia
African Journal of Business Management, 2015
The objective of the study was to empirically examine the impact of credit risk on profitability of commercial banks in Ethiopia. For the purpose secondary data collected from 8 sample commercial banks for a 12 year period (2003-2004) were collected from annual reports of respective banks and National Bank of Ethiopia. The data were analyzed using a descriptive statics and panel data regression model and the result showed that credit risk measures: non-performing loan, loan loss provisions and capital adequacy have a significant impact on the profitability of commercial banks in Ethiopia. The study suggested a need for enhancing credit risk management to maintain the prevailing profitability of commercial banks in Ethiopia.
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.
African Journal of Business Management, 2018
This study aims at examining the determinants of the financial performance of private commercial banks in Ethiopia. The study uses secondary data for eight private banks which are in the industry for more than ten years. These banks are chosen from sixteen private commercial banks which are currently functional in Ethiopia banking industry. The data for this study is obtained from annual reports of the banks, minutes and the national bank report. Correlation and multiple linear regressions of panel data for the eight banks for the years 2007 to 2016 is analyzed using random effect model. E-Views 9 software was used for analyzing the data. Return on Asset and Return on Equity are the selected dependent variables while non-performing loan, capital adequacy ratio, bank size, leverage ratio, credit interest income ratio, loan loss provision ratio and operation cost efficiency were the independent variables. Results show that Capital Adequacy Ratio (CAR), Credit Interest Income (CIR) and Size of the bank (SIZE) have positive and statistically significant effect on financial performance. Non-performing Loans (NPLs), Loan Loss Provision (LLP), Leverage Ratio (LR) and Operational Cost Efficiency (OCE) have negative and statistically significant effect on banks' financial performance. The study suggests that Ethiopian commercial banks are advised to manage their loan loss, be cost efficient, and fix their leverage ratio at maximum level to enhance their profitability.