Determinant of non- performing loan: Evidence from commercial banks in Ethiopia

Abstract

Loan or advances means any financial asset of the bank arising from the direct or indirect advances by a bank to people that were conditioned on the obligation of the person to repay the fund, either on a specified date or dates usually within interest. The study was examined the bank-specific and macro-economic determinants of Non-performing loans (NPLs) of commercial banks in Ethiopia. In this study eight commercial banks were considered by using sampled data form 2010 to 2019. The bank's financial statement, National Bank of Ethiopia, central statistics agency and Ministry of finance and Economic Cooperation has been the main source for the study. The study employs quantitative research approach and panel regression random effect model was used. The study revealed that loan growth and bank size had a positive and significant influence on NPLs in Ethiopian commercial banks whereas; liquidity and gross domestic product had a negative and significant impact on NPLs in Ethiopian commercial banks. That commercial banks in Ethiopia should consider the macro economic factors before extending Micro economic variables