Determinants Of Ethiopian Private Commercial Banks Asset Quality

Both macroeconomic and bank-specific factors affect the occurrence of Non-PerformingrnLoan; the most suitable proxy for asset quality measurement. This study identifies bankrnspecific and macroeconomic factors that contribute to these nonperforming loans inrnEthiopian private commercial banks. Six private commercial banks have been the subjectrnfor the study ranging from 2004/2005 to 2012/2013. The bank's financial statement,rnNational Bank of Ethiopia and Ministry of finance and Economic Cooperation has beenrnthe main source for the study and the panel analysis has been carried out to obtain thernresult for this empirical study. The study begins with Hausman test (Random EffectrnModel versus Fixed Effect Model) to determine the most suitable model to be used in thisrnstudy. The empirical results showed that GDP growth and annual inflation rate arernpositively related to non-performing loans, suggesting that private commercial banksrnshould consider the macro economic factors before extending loans. A negativernrelationship of CAR and ROE with the volume of private commercial banks non-rnperforming loans was also found. Contrary to previous studies, the findings also showedrnan insignificant relationship among real lending rate and NPLs of Ethiopian privaterncommercial banks.rnKeywords: Non-performing loans; Macroeconomic determinants; Bank specificrndeterminants

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