Determinants Of Non-performing Loans Empirical Study On Ethiopian Commercial Banks

This study examines the bank-specific and macro-economic determinants of Non-rnperforming loans (NPLs) of commercial banks in Ethiopia. The study adopts a mixedrnmethods research approach by combining documentary analysis (structured review ofrndocuments) and in-depth interviews. More specifically, the study reviews the financialrnrecords of eight commercial banks in Ethiopia and relevant data on macroeconomicrnfactors considered for the period from the year 2000 to 2011. The findings of the studyrnshow that, loan growth, financial performance, operational efficiency, effective exchangernrate, inflation rate and gross domestic product have negative and statistically significantrnrelationship with banks’ NPLs. On the other hand, variables like bank size and staternownership have a positive and statistically significant relationship with banks’ NPLs.rnHowever, the relationship for average lending rate and income diversification werernfound to be statistically insignificant. The studyrnsuggestsrnthatrnfocusingrnandrnreengineering the banks alongside the key drivers of NPLs could reduce thernprobability of loan default in Ethiopian commercial banks

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