DETERMINANT FACTORS OF BANK CREDIT IN THE CASE OF PRIVATE COMMERCIAL BANKS IN ETHIOPIA

Abstract

The study examined factors affecting bank credit in private commercial banks in Ethiopia. It tested by the relationship between the banks’ lending and some determinant factors that affect credit facilities. As per the research problem, the research methodology was more of explanatory or causal research design to show the causal relationship between dependent and independent variables and quantitative research approach used to gather data. The study included private commercial banks that have at least ten years data from year 2007 -2016 G.C. The researcher employed non-probability sampling design purposive sampling technique used from the selected eight private commercial banks. The collected data analyzed by using descriptive statics and regression analysis. To address the objective of the study secondary source of data was used in the form of ten years data from annual reports of selected private commercial banks. The results of panel data regression analysis showed that bill purchase, liquidity and reserve requirement had negative and significant impact on loan and advance. Deposit, capital adequacy and non-performing loan had positive and significant impact on loan and advance. However, gross domestic product had positive but insignificant effect on loan and advance. The study suggests banks might increase their deposit mobilization by giving different incentive to depositors, increase capital adequacy by increasing shareholders equity, decrease turnover of bill purchase rate by giving long term loan and decrease reserve requirement rate by NBE. Also, banks increase illiquid asset to increase loan and advance rather to hold more liquid asset being long term loans increase the illiquid asset of the bank.