Determinants of private banks lending Behaviour in Ethiopia, a case of selected private banks

Abstract

This study investigated main determinants of commercial banks’ lending behavior in Ethiopian by using panel data of ten banks over the period 2009 to 2019. In order to achieve research objective the Study has been used quantitative research approach. The analyses were performed using panel data derived from the financial statements of sampled private commercial banks and macro-economic data from National bank of Ethiopia and ministry of finance and economic development. Ordinary least square (OLS) technique was applied to determine the impact of those predictor variables on commercial bank lending behavior. The collected balanced panel data was analyzed with descriptive statistics, and multiple linear regression analysis and based on the Hausman Specification test the random effect model was preferred. Ten explanatory variables that affect banks’ lending were selected and analyzed with STATA 16 econometrics software package. Result of the study reveals that, volume of deposit; market share and lending interest rate positively and significantly affect private banks lending behavior’ but liquidity ratio, and cash reserves requirement and non-performing loan negatively and significantly affect private banks lending behavior’. The study suggests that Ethiopian commercial banks should enhance their strategies in mobilizing deposits from the public and have to strive to strength their market share. And also the banks’ should manage their liquidity and administer their lending activity by considering internal factors, existing economic situation, competitive environment, regulatory measures and their target customers