Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia
Year: 2025
Type: article
Abstract: Purpose: This study aims to empirically examine the determinants of non-performing loans (NPLs) in selected private commercial banks in Ethiopia, focusing on both bank-specific and macroeconomic factors. Design/Methodology/Approach: The research adopts an explanatory design with a quantitative approach, analyzing panel data from twelve private commercial banks over a period of ten years (2012–2021). The data was processed using E-Views 10 software, employing descriptive statistics, correlation matrices, and multiple linear regression with both fixed and random effects models. Findings: The results indicate that exchange rates have a positive and statistically significant impact on NPLs. In contrast, income diversification, capital adequacy, loan growth rate, and loan-to-asset ratio show negative and significant effects on NPLs. Research Limitations/Implications: The study is limited to private commercial banks, thereby excluding public banks and non-bank financial institutions. Additionally, the reliance on secondary data may overlook qualitative factors that influence NPLs. Future research could broaden the sample size and incorporate primary data for deeper insights. Originality/Value: This study contributes to the literature by providing context-specific insights into the determinants of NPLs in Ethiopia's banking sector, addressing gaps in existing research. Its findings offer actionable recommendations for policymakers and bank managers to mitigate NPL risks, ultimately enhancing financial stability in emerging economies.
Authors: Abubaker Demssie, Abebe Kassaye
Institution: Ethiopian Civil Service University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4413382008