Factors Determining Banks’ Loan and Advance: A Case Study on Commercial Banks in Ethiopia
Résumé
Commercial banks are the most important depository organizations that provide loan and advance in developing country. The objective of this study was to provide empirical evidence on determinants of banks’ loan and advances in Ethiopia. Fixed effect balanced panel regression was used for the data of ten purposively chosen commercial banks over the period of 12 years (2010 to 2021). To realize the stated objective quantitative approach and explanatory design were employed using secondary data sources from the audited financial statement. Consequently bank specific, industry specific and macro-economic variable that affect banks’ loan were selected and analyzed by using E-view 10 econometrics software. According to the findings, capital adequacy, liquidity ratio, bank size, and foreign exchange rate all have a positive and statistically significant impact on bank loans. Profitability ratios, cash reserve ratios, and broad money supply, on the other hand, has a negative and statistically significant impact on bank lending. While fixed asset ratio, asset quality ratio, and GDP were found to have statistically insignificant effects on the bank’s loans and advances. The regression result indicated that Profitability, cash reserve requirements, and broad money supplies all have negative effects. Therefore Ethiopian commercial banks and NBE must pay close attention and control for those variables to be able advancing banks’ loan.
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