Determinant Of Non Performing Loan In Ethiopian Private Commercial Banks With Emphasis On Manufacturing Sector

The main goal of Ethiopian private commercial banks (EPCB) is to operate profitably in orderrnto maintain its stability and improve growth and sustainability. However, EPCBs experiencernhigh levels of non-performing loans. This trend threatens viability and sustainability of banksrnand hinders the achievement of their goals. This study was aimed at assessing the determinantsrnof non-performing loan growth rate. Specifically the study sought to establish the effect ofrnmicroeconomic variables (deposit Interest rate, exchange rate and annual inflation rate), bankrnspecific (loan to deposit ratio, credit monitoring and follow-up and loan growth rate) andrnbusiness characteristic (business profit margin and nature of business). The study was used bothrnprimary and secondary data. The study target population comprises six Ethiopian privaterncommercial banks and 12 manufacturing sub sectors (food and beverage and textile). The studyrnadopts a mixed methods research approach by combining documentary analysis (structuredrnreview of documents) and in-depth interviews. More specifically, the study reviews the financialrnrecords of six private commercial banks in Ethiopia and relevant data on macroeconomicrnfactors considered for the period from the year 2000 to 2015. The sampling of the study includesrnsix private commercial banks, from 16 private commercial banks based on their share of totalrnoutstanding loan. The collected panel data is analyzed using descriptive statics, correlationrnmatrix and multiple linear regression analysis. The findings of the study show that businessrnprofit margin, deposit interest rate, loan growth rate, loan to deposit ratio, credit monitoring andrnfollow-up and nature of business statistically significant relationship with banks’ NPLs. On thernother hand, variables like exchange rate and inflation rate were found to be statisticallyrninsignificant. Base on the finding the study recommended that Loan growth, business profitrnmargin, loan to deposit ratio and deposit interest rate were significant driver of NPLs, hencernfocusing and engendering the institution alongside these indicators could reduce the probabilityrnof NPL in Ethiopian private commercial banks

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