IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v16y2023i9p406-d1237512.html
   My bibliography  Save this article

Credit Risk Determinants in Selected Ethiopian Commercial Banks: A Panel Data Analysis

Author

Listed:
  • Seid Muhammed

    (Doctoral School of Economic and Regional Sciences, Hungarian University of Agriculture and Life Sciences, Páter Károly u. 1, 2100 Gödöllo, Hungary
    Department of Accounting and Finance, College of Business and Economics, Salale University, Fitche P.O. Box 245, Ethiopia)

  • Goshu Desalegn

    (Doctoral School of Economic and Regional Sciences, Hungarian University of Agriculture and Life Sciences, Páter Károly u. 1, 2100 Gödöllo, Hungary
    Department of Accounting and Finance, Faculty of Business and Economics, Kotobe Metropolitan University, Addis Ababa P.O. Box 5563, Ethiopia)

  • Maria Fekete-Farkas

    (Szent Istvan Campus Institute of Agricultural and Food Economics, Hungarian University of Agriculture and Life Sciences, Páter Károly u. 1, 2100 Gödöllő, Hungary)

  • Emese Bruder

    (Szent Istvan Campus Institute of Agricultural and Food Economics, Hungarian University of Agriculture and Life Sciences, Páter Károly u. 1, 2100 Gödöllő, Hungary)

Abstract

The study aims to investigate the factors that contribute to credit risk in Ethiopian commercial banks, considering both macroeconomic and bank-specific factors. The research utilized multiple regression models, a quantitative research approach, and explanatory research designs. A purposive sample technique was used to select 10 commercial banks for the study, and secondary data from audited financial reports were analyzed. The findings of the study reveal a significant positive relationship between credit risk and several variables, including bank size, profitability, efficiency, capital adequacy, and inflation. Conversely, there is an inverse relationship between credit risk and both loan growth and currency rates. Surprisingly, the study found that neither GDP nor interest rates have a significant impact on credit risk. Based on these findings, the study provides recommendations for Ethiopian commercial banks. It suggests maintaining adequate levels of capital, avoiding business in sectors influenced by inflationary pressures, carefully evaluating non-interest income, and adjusting lending policies as necessary. Furthermore, the study advises periodically examining the relationships between GDP growth, interest rates, and credit risk. It also emphasizes the importance of adapting credit risk management practices to changing market conditions and staying vigilant toward emerging trends.

Suggested Citation

  • Seid Muhammed & Goshu Desalegn & Maria Fekete-Farkas & Emese Bruder, 2023. "Credit Risk Determinants in Selected Ethiopian Commercial Banks: A Panel Data Analysis," JRFM, MDPI, vol. 16(9), pages 1-14, September.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:9:p:406-:d:1237512
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/16/9/406/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/16/9/406/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Maryem Naili & Younes Lahrichi, 2022. "The determinants of banks' credit risk: Review of the literature and future research agenda," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 334-360, January.
    2. Paulo V. Carvalho & José D. Curto & Rodrigo Primor, 2022. "Macroeconomic determinants of credit risk: Evidence from the Eurozone," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2054-2072, April.
    3. IDOWU Abiola & Awoyemi Samuel Olausi, 2014. "The Impact of Credit Risk Management on the Commercial Banks Performance in Nigeria," International Journal of Management and Sustainability, Conscientia Beam, vol. 3(5), pages 295-306.
    4. Donjeta Morina, 2020. "Determinants of Credit Risk in Commercial Banks of Kosovo," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 179-190.
    5. Idowu Abiola & Awoyemi Samuel Olausi, 2014. "The Impact of Credit Risk Management on the Commercial Banks Performance in Nigeria," International Journal of Management and Sustainability, Conscientia Beam, vol. 3(5), pages 295-306.
    6. Chaibi, Hasna & Ftiti, Zied, 2015. "Credit risk determinants: Evidence from a cross-country study," Research in International Business and Finance, Elsevier, vol. 33(C), pages 1-16.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Seid Muhammed & Goshu Desalegn & Prihoda Emese, 2024. "Effect of Capital Structure on the Financial Performance of Ethiopian Commercial Banks," Risks, MDPI, vol. 12(4), pages 1-15, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jamil Salem Al Zaidanin, 2020. "A Study on Financial Performance of the Jordanian Commercial Banks using the CAMEL Model and Panel Data Approach," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 9(4), pages 111-130, October.
    2. Baah Aye Kusi & Lydia Adzobu & Alex Kwame Abasi & Kwadjo Ansah-Adu, 2020. "Sectoral Loan Portfolio Concentration and Bank Stability: Evidence from an Emerging Economy," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 19(1), pages 66-99, April.
    3. Anupam Das Gupta & Syed Moudud-Ul-Huq, 2020. "Do competition and revenue diversification have significant effect on risk-taking? Empirical evidence from BRICS banks," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-28, March.
    4. Rahman Ashiqur & Belas Jaroslav & Rahman M. Twyeafur, 2017. "Determinants of SME Finance: Evidence from Three Central European Countries," Review of Economic Perspectives, Sciendo, vol. 17(3), pages 263-285, September.
    5. Muhammad Waqas & Nudrat Fatima & Aryan Khan & Muhammad Arif, 2017. "Determinants of Non-performing Loans: A Comparative Study of Pakistan, India, and Bangladesh," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(1), pages 51-68, January.
    6. Faten Ben Bouheni & Hassan Obeid & Elena Margarint, 2022. "Nonperforming loan of European Islamic banks over the economic cycle," Annals of Operations Research, Springer, vol. 313(2), pages 773-808, June.
    7. Bouteska, Ahmed & Büyükoğlu, Burak & Ekşi, Ibrahim Halil, 2023. "How effective are banking regulations on banking performance and risk? Evidence from selected European countries," Finance Research Letters, Elsevier, vol. 53(C).
    8. Zia Ur Rehman & Noor Muhammad & Bilal Sarwar & Muhammad Asif Raz, 2019. "Impact of risk management strategies on the credit risk faced by commercial banks of Balochistan," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-13, December.
    9. Ghosh, Saibal, 2019. "Loan delinquency in banking systems: How effective are credit reporting systems?," Research in International Business and Finance, Elsevier, vol. 47(C), pages 220-236.
    10. Vuslat Us, 2017. "A dynamic approach to analysing the effect of the global crisis on nonperforming loans: evidence from the Turkish banking sector," Applied Economics Letters, Taylor & Francis Journals, vol. 24(3), pages 186-192, February.
    11. Mangirdas Morkunas & Gintaras Cernius & Gintare Giriuniene, 2019. "Assessing Business Risks of Natural Gas Trading Companies: Evidence from GET Baltic," Energies, MDPI, vol. 12(14), pages 1-14, July.
    12. Helen Toxopeus & Elisa Achterberg & Friedemann Polzin, 2021. "How can firms access bank finance for circular business model innovation?," Business Strategy and the Environment, Wiley Blackwell, vol. 30(6), pages 2773-2795, September.
    13. Bogdan Florin FILIP, 2017. "Lessons From The Impact Of Internal And Macroeconomic Determinants Of Bad Loans In Cee Banks," EURINT, Centre for European Studies, Alexandru Ioan Cuza University, vol. 4, pages 198-212.
    14. S Zhou & D.D Tewari, 2018. "Political Institutions and Macroeconomic Factors as Determinants of Credit Risk in South Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 10(6), pages 211-221.
    15. Anastasiou, Dimitrios, 2017. "Is ex-post credit risk affected by the cycles? The case of Italian banks," Research in International Business and Finance, Elsevier, vol. 42(C), pages 242-248.
    16. Zheng, Changjun & Moudud-Ul-Huq, Syed & Rahman, Mohammad Morshedur & Ashraf, Badar Nadeem, 2017. "Does the ownership structure matter for banks’ capital regulation and risk-taking behavior? Empirical evidence from a developing country," Research in International Business and Finance, Elsevier, vol. 42(C), pages 404-421.
    17. Fapetu Oladapo & Seyingbo Oluwagbenga Abayom & Owoeye Segun Daniel, 2017. "Credit Risk Management and Interest Income of Banks in Nigeria," Computational Methods in Social Sciences (CMSS), "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences, vol. 5(1), pages 23-35, June.
    18. Nor, Amirudin Mohd & Masih, Mansur, 2017. "Do Islamic banks lead or lag conventional banks? Evidence from Malaysia," MPRA Paper 79425, University Library of Munich, Germany.
    19. Laxmi Koju & Ram Koju & Shouyang Wang, 2018. "Does Banking Management Affect Credit Risk? Evidence from the Indian Banking System," IJFS, MDPI, vol. 6(3), pages 1-11, July.
    20. Ashraf, Badar Nadeem & Zheng, Changjun & Jiang, Chonghui & Qian, Ningyu, 2020. "Capital regulation, deposit insurance and bank risk: International evidence from normal and crisis periods," Research in International Business and Finance, Elsevier, vol. 52(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:16:y:2023:i:9:p:406-:d:1237512. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.