Abstract:
This study is aim at examining the impact of credit risk management on the performance of
commercial banks in Ethiopia. Thus, the major focus is to investigate empirically bank specific,
industry specific and macroeconomic factors that affect banks performance. In this study, the
researcher used only secondary sources of data. Data to do the analysis is obtained from annual
report of each selected commercial banks, National Bank annual report and MoFED. The study
used eight selected commercial banks which served in the industry for elven years and above
among seventeen commercial banks which is functional at the moment in Ethiopia banking
industry. The study used panel data random effect model for analysis methods of the impact of
credit risk management on performance commercial banks in Ethiopia over the years 2005 to
2015. The collected data were analyzed by using stata version- 12 econometric soft were for
running descriptive and regression analysis. Return on asset used as a dependent variable
whereas non- performing loan ratio, deposit growth rate, income diversification, bank size,
industry concentration, interest rate spread, GDP growth rate and inflation growth rate as an
independent variable. The panel data random effect model result shows that the credit risk which
is measured by non-performing loan ratio, deposit growth rate and interest rate spread had a
significant inverse impact on banks performance while income diversification and industry
concentration have a positive significant impact on banks performance. In addition, the study
founds bank specific factors like bank size and macroeconomics variable such as GDP growth
and Inflation rate had no significant impact on banks performance. In general, this study
concluded that Bank Specific factors, industry specific factors and macroeconomics variable
factors had a significant impact on banks performance though the bank specific factors has a
greatest impact of all other
