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Credit Risk Management and Profitability of Commercial Banks in Ethiopia
This paper examines the impact level of credit risk management towards the profitability of commercial banks in Ethiopia in general .it argues that credit risk management has significant impact on profitability of banks of our country. To examine its impact level the researcher uses multiple regression models by taking 10 years ROE (dependent variable), NPLR and CAR (independent variables) from each bank and in addition to that questioner was also distributed to the authorized bodies in the risk management position of each bank. The researcher took seven banks purposively that have ten year and above life span in Ethiopia, those are Commercial bank of Ethiopia ,Nib international bank ,Dashen bank ,Awash international bank ,Banks of Abyssinia, Wegagen Bank and United Bank . Key words: Credit Risk Management, Banks Profitability
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Uttam Golder
This paper examines the impact level of credit risk management towards the profitability of commercial banks in Ethiopia in general .It argues that credit risk management has significant impact on profitability of banks of our country. To examine its impact level the researcher uses multiple regression models by taking 10 years ROE (dependent variable),ROA(dependant variable), NPLR,LLPR,LTDR and CAR (independent variables) from each bank and in addition to that questioner also distributed to the authorized bodies in the risk management position of each bank. The researcher took five banks purposively that have ten year and above life span in Ethiopia, those are Commercial bank of Ethiopia, Dashen bank, Awash international bank, Banks of Abyssinia, and Wegagen Bank. Here You have to include a short summary of your conclusion and Recommendation.
ENGDAWORK TADESSE
The objective of the study is to empirically examine the quantitative effect of credit risk on the performance of commercial banks in Ethiopia, considering variables related to lending activities, over the period of 5 years (2008-2012). The empirical investigation uses the accounting measure of Return on Assets (ROA), which is the dependent variable, to represent Banks’ performance. The study fundamentally involves both descriptive and econometrics techniques. The econometrics method used in the study basically involves assessing the impact of selected internal variables, the provision to total loans, loan to total asset, credit administration (cost to total loans) and natural logarithm of total asset (Economies of scale), on the performance of the banking sector. To this end multiple linear regression model is used to measure the relative weighting of the independent variables above on a dependent variable. Basic descriptive statistics was appliedfor trend analysis. A nonprobabilit...
mulugeta tesfaye
This study attempts to reveal the relationship between credit risk and financial performance of commercial banks in Ethiopia. In order to investigate these study quantitative research approach is employed based on documentary analysis. A panel data from six selected commercial banks covering the ten-year period (2007-2016) is analyzed within the fixed effects model on regression analysis and using E-view8 software. The study used one dependent variable return on asset (ROA), four independent variables that are: nonperforming loan to total loan and advance ratio (NPLTLA), loan provision to total loan and advance ratio (LPTLA), total loan and advance to total deposit ratio (TLATD) and the ratio of non-performing loan to loan provision (NPLLP) as measures of credit risk. Both descriptive statistics and regression analysis specifically fixed effects model were used to analyze the relationships of the depended variable with explanatory variables. The regression result show that non-perfo...
Journal of economics and sustainable development
Shibiru Tade
The objective of study was to assess the impact of credit risk management on the performance of private commercial banks in Ethiopia. The sample in this study consisted of six private commercial banks for a 14 period (2000 to 2013) were collected from audited financial statement of respective banks and National Bank of Ethiopia. The collected data were analyzed by using panel data regression model and the result showed that credit risk management measures: capital adequacy ratio, total loan ratio, non- performing ratio, bank size and liquidity ratio have a significant impact on the performance(ROA and ROE) of Private commercial banks.The study recommended that the banks’ credit risk management should give due attentionon capital adequacy and management of loan portfoliosin order to minimize the high incidence of non-performing loansand their negative effect on profitability of commercial banks. Keywords : Credit Risk Management, performance, private Commercial Banks in Ethiopia.
Efficient and effective performance of banking industry over time is an index of financial stability in any nation. Risk management is a key issue to sustain the financial stability. The presence of different risks in financial industry appeals for effective risk management procedures. As a result, this study examined the effect of risk management on financial performance of 17 Ethiopian Commercial Banks. Quantitative research approach was applied using secondary data for the sample period covered from 2013 to 2017. The collected data was analyzed by using panel random effect regression model. The result of the study shows that credit risk, liquidity risk, operating risk and market risks have significant negative impact on financial performance of commercial banks in Ethiopia. Whereas, bank size as control variable has positive impact on financial performance of commercial banks. The study concludes that credit, liquidity, operation and market risks have significant effects on finan...
IAEME PUBLICATION
IAEME Publication
The purpose of this study was to examine the effect of risk Management aspects such as, managing credit risk, managing operational risk, managing Liquidly risk and managing Market risk on Financial performance (Return on asset and Return on equity) of banking sectors in Ethiopia. The data of five years from 17 Ethiopian commercial banks was taken and the regression result showed that non performing loan ratio and Loan Loss Provision Ratio (Managing Credit risk) has significantly impact both Return On Asset and Return On Equity but Capital adequacy ratio has significance only if financial performance is measured by ROA. Loan to deposit ratio, exchange rate and inflation rate didn’t indicated significance effect on Ethiopian commercial banks.
EPRA International Journal of Research & Development (IJRD)
Richard Barfi
This study attempted to explore the connection between credit risk management and the profitability of the Ghana Stock Exchange (GSE) listed commercial banks. The study specifically sought to examine the relationship between credit risk and the profitability of the firms as measured by ROA. The study adopted these variables to measure credit risk (non-performing loan ratio, cost per loan asset, capital reserved 0.1ratio and asset growth ratio) and return on asset (ROA) as a profitability estimator. Following some diagnostic and specification studies to address the fundamental assumptions of the Classical Linear Regression Model (CLRM). The study uncovered that NPLR had a significantly negative effect on the firms’ profitability as measured by ROA [β=-0.1671, (p=0.1360)>0.05]. Also, the cost per loan asset (CPLA) had a positive influence on the firms’ profitability as measured by ROA [β= 0.0249, (p=0.8252)>0.05]. For the other variables of credit risk measurements, capital rese...
Semere Simon
This study focuses on the impact of credit risk management on the performance of commercial banks in Eritrea. The main indicators used in this study are Return on Assets (ROA), Non-performing Loans Ratio (NPLR), Capital Adequacy Ratio (CAR), Loan and Advances Ratio (LAR) and Loan Loss Provision Ratio (LLPR). The researches collects data from Commercial Bank of Eritrea and Housing and Commerce Bank of Eritrea from 1998 to 2015. Descriptive and panel data regression analysis are used in order to test the relationship between the four indicators and the performance of commercial banks in Eritrea. The findings show that credit risk management is inversely associated with bank performance. The nonperforming loan, and loan and advances ratios significantly and negatively affected performance of the commercial banks. The result indicates that loan and advances ratio are negative but statistically insignificant. There is a positive relationship between CAR and ROA. The significant positive relationship between loan loss provision and commercial banks performance in this study could indicate the presence of potential earning management activities by bank managers.
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The Impact of Credit Risk Management on Profitability of Commercial Banks : A Study of Europe
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Credit Management Practices and Loan Performance: Empirical Evidence from Commercial Banks in Kenya
- International Journal of Current Aspects in Finance Banking and Accounting 2(1):51-63
- CC BY-NC-ND 4.0
- Kenyatta University
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The main results of the study are the creation of a model of borrowers' internal credit ratings and the development of the methods of improving credit risk management in commercial banks ...
The effective management of credit risk not only enhance profitability and viability of banks but contributes to the systemic stability and efficient allocation of capital in the economy (Psillaki, Tsolas, & Margaritis, 2010). This is very important to banks as it is an integral part of the banks' loan process.
of the level commercial banks profit or loses within a specified time period. Various measures have been used to measure the financial performance of commercial banks. Credit risk management is one of the most essential functions of the bank in the modern banking system. The risk is inherent in all aspect of banking business operations.
Credit risk is the most important risk of a commercial bank by the nature of its activity (Van Gestel, T., and Baesens, B. 2009). A commercial bank that fails to put in place adequate credit risk management practices is considered to be unsafe and unsound (Federal Reserve System, 2020).
The purpose of this paper is to investigate the relationship between credit risk management and its impact on performance of commercial banks in Ethiopia. This study is primarily based on secondary data. Secondary data were collected from nine (09) commercial banks in Ethiopia.
20. National Bank of Ethiopia. Licensing and Supervision of Banking Business Minimum Capital Requirement for Banks (Amended) Directives No. SBB/78/2021. 21. Mwangi GN. The effect of credit risk management on the financial performance of commercial banks in Kenya (Doctoral dissertation). 22. Achou TF, Tenguh NC. Bank performance and credit risk ...
The collected data were analyzed by using panel data regression model and the result showed that credit risk management measures: capital adequacy ratio, total loan ratio, non- performing ratio, bank size and liquidity ratio have a significant impact on the performance(ROA and ROE) of Private commercial banks.The study recommended that the ...
This study undertakes a comparative investigation of the influence and adoption of credit risk management strategy on the performance of commercial banks in the United Arab Emirates (UAE) and the United Kingdom (UK). The research assesses the uses and approaches to credit risk management in the UAE in comparison to the UK, beginning with a thematic
k management is becoming a crucial factor for every commercial bank around the world. The objective of this study is to identify the imp. ct of credit risk management on the performance of the commercial. banks in Sri Lanka. This study is primarily based on both primary and secondary data. Primary data. ere collected from eight (08) commercial ...
The thesis includes theories that relate to credit risk management. For the empirical part, a mixed research method of qualitative and desktop research is used to study the credit risk issue of a case bank, Bank for Investment and Development of Vietnam (BIDV). Qualitative research are carried out by interviews via email with the target bank ...
operations of all the registered banks in Kenya. 1.1.1 Credit Risk Management Credit risk arises when there is a risk that the borrower fails to payback the principal, interest or any amount of debt. The lender is the party that faces the risk which is the bank for this research. Among the risk include cash flows disruption, lost interest and
Abstract. This study captured the impact of credit risk management on performance of commercial banks in Pakistan. A fundamental research proposal was accepted in this study, and this was facilitated by the use of secondary data which was obtained from the SBP publications on banking sector survey, official websites and KSE.
formance of Nepalese Commercial Banks Yuga Raj Bhattarai *AbstractThis study has examined. he effect of credit risk on performance of Nepalese commercial banks. The descriptive an. causal comparative research designs have been adopted for the study. The pooled data of 14 commercial banks. or the period 2010 to 2015 have been analyzed using ...
effect of credit risk management on financial performance of commercial banks listed at the nairobi securities exchange, kenya onang'o omurwa nyabicha d53/5930/2003 a thesis submitted to the school of business in partial fulfilment of the requirements for the award of the
Experiences elsewhere in the world suggest that the key risk in a bank has been credit risk. Credit risk management means the process of risk identification, measurement, monitoring and control (NBE, 2010). Banks need to manage credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions.
Credit Risk Management The principal goal of credit risk management is to decrease the effects of risks, related to an influence accepted by the public (Brigham et al., 2016). Usually, loans are the prime and most apparent source of credit risk of banks. However, there are other sources of credit risk which
cern is the risk of credit, which has a profound impact on the banking sector and its profitability. Hence, aim of this study is to. lyze the impact of credit risk management practices on profitability of licensed commercial banks. The research takes on a quantitative approach and will be based on an analysis of secondary data. The p.
This study analyzes the relationship between credit risk and profitability on the capital adequacy ratio (CAR) of commercial banks in Indonesia. The empirical model result shows that credit risk … Expand
Credit risk is acknowledged as the most important risk facing commercial banks. Thus, some studies have focused exclusively on examining the impact of credit risk management on the financial performance of commercial banks. Studies on commercial banks in Nigeria include Kolapo et al. (2012), Iwedi and Onuegbu (2014) and Uwalomwa et al. (2015).
commercial banks. Credit Risk Risk that the borrower will not be able to commit to the set payment arrangement. Credit Management Practices. These are the collection practices, client debt appraisal practices and lending practices adopted by commercial banks to minimize the risk exposure emanating from non- timely and default in repayment of
Abiola and Olausi (2014) have investigated the impact of credit risk management on the performance of commercial banks in Nigeria. Financial reports of seven commercial banking firms were used to analyze for seven years (2005-2011). Panel regression model was employed for the estimation of the model.
Credit Management Practices and Loan Performance: Empirical Evidence from Commercial Banks in Kenya May 2020 International Journal of Current Aspects in Finance Banking and Accounting 2(1):51-63
profitability) and credit risk management (in terms of loan performance). Lending or credit creation seek to maximize profitable objective of bank, the rate at which commercial banks borrow from the central bank has gone down to 7% from 7.5%. This is expected to facilitate commercial banks to borrow cheaply so that they also lend cheaply in