THE IMPACT OF NON-PERFORMING LOANS ON BANKS PROFITABILITY IN CASE OF DASHEN BANK S.C

Abstract

This study focuses on the impact of NPL on Dashen bank profitability. Bank loans have a vital contribution towards development of economy by financing different sectors. However, non-performing loans are leads to incidence of huge loss on banks profit in particular and country economy in general. Hence, this study was conducted to examine both internal factors (non-performing loan rate and lending interest rate) and external factors (Ethiopian inflation and GDP rate) impact of NPL on bank profitability. To this end, the researcher has selected Dashen bank S.C judgmentally. This study used secondary sources of data, which is cover the period 1999/00-2013/14.These data were collected from Dashen bank S.C annual reports, memos, loan policy and procedure, NBE directives and CSA. Furthermore, a descriptive statics and linear regression model was used to examine the impact of NPLs by using SPSS version 20 software. This research is a quantitative research design, explanatory, that identifies the cause and effect relationships between the study variables and ROA. The finding of this study is significant since once identifying the impact of NPLs might enable management body to make appropriate lending policies that prevent the occurrence of NPLs. Furthermore, the study recommended the bank should emphasize the management of loans to reduce the level of nonperforming loans. Besides, it is better for the loan officers to provide financial counseling to the borrowers on the wise use of loan.