Determinants of nonperforming loan in Selected Ethiopian Commercial Banks

Abstract

The major focus of this study is to empirically identify determinants of nonperforming loans in selected commercial banks in Ethiopia. The study covered 9commercial banks which had issued annual reports for 10 years (2010-2018). The secondary data on NPL and bank specific factors were collected from the annual reports and other relevant documents of banks under study. Moreover data on the macroeconomic factors was collected from reports of NBE. A panel data model, with its pooled ols, fixed effect model and random effect estimate, was applied to test hypotheses in the study. Based on finding, it has been concluded that return on asset is negative and statistically significant at 1% significance level, return on equity is positive statistically significance 1% significance level, lending rate positive 10% significance level. And loan to deposit ratio 5 percentage significant level. Bank size, GDP, and inflation are showed a positive and highly significant at 1% significance level, exchange rate turn out to be positive and significance association with of non-performing loan at 5% significance level. Hence, the researcher recommends that by focusing on these variables the firm can reduce the probability of nonperforming loans in Ethiopian commercial banks