Abstract:
This study aimed to investigate the determinants of private commercial banks’ lending in
Ethiopia. To this end, the researcher has selected seven senior private commercial banks
in Ethiopia judgmentally. This study used secondary sources of data, which is panel data
in nature, over the period 2009-2023.These data were collected from audited annual
financial statements of private commercial banks and the National Bank of Ethiopia to
examine the bank-specific determinants as well as the macroeconomic determinants of
private commercial banks’ lending in Ethiopia. This research is an explanatory research
design that identifies the cause and effect relationships between the loan and advances and
its determinants. The collected panel data were analyzed with descriptive statistics and
multiple linear regression analysis. Fixed effect panel regression model was used for this
study. Nine explanatory variables that affect banks’ lending were selected and analyzed
through STATA 14 econometrics software package. The results of panel data regression
analysis showed that bank size and volume of deposit, management efficiency, real gross
domestic product, cash reserve requirement ratio had a positive effect on private
commercial banks’ lending in Ethiopia. Liquidity ratio and non-performing loan had a
negative and statistically significant effect on private commercial banks’ lending in
Ethiopia. Lending interest rate and inflation had a negative correlation but statistically
insignificant with private commercial banks’ lending in Ethiopia. The regression result
showed that R-square of the model 96.6% which implies that the selected independent
variables had explained 96.6% of the dependent variable and the remaining 3.4 % of
changes were explained by other factors which are not included in the model .The model
study suggests that Ethiopian private commercial banks should have to strive to strengthen
their asset size and enhance their strategies in mobilizing deposits from the public. In
addition, private commercial banks’ should manage their liquidity and administer their
lending activity by considering internal factors, existing economic situation, macro-
economic environment, regulatory measures, and their target customers when extending
loans.
