This document summarizes a study that examined the determinants of commercial bank lending in Ethiopia between 2005-2011. The study tested whether bank size, credit risk, GDP, investment, deposit, interest rate, liquidity ratio, and cash reserve requirements influenced bank lending. It found that bank size, credit risk, GDP, and liquidity ratio had a significant relationship with lending, but deposit, investment, interest rate, and cash reserves did not. The study suggests banks focus on managing credit risk and liquidity to support lending.
This document summarizes a study that examined the determinants of commercial bank lending in Ethiopia between 2005-2011. The study tested whether bank size, credit risk, GDP, investment, deposit, interest rate, liquidity ratio, and cash reserve requirements influenced bank lending. It found that bank size, credit risk, GDP, and liquidity ratio had a significant relationship with lending, but deposit, investment, interest rate, and cash reserves did not. The study suggests banks focus on managing credit risk and liquidity to support lending.
This document discusses empirical research on the determinants of bank lending across countries. It proposes estimating equations to model domestic credit levels based on bank balance sheet and capital requirements approaches. The analysis will use data from 146 countries over 1990-2013 to examine how economic growth, banking system health, and external capital flows influence domestic credit after controlling for other factors. Key determinants expected to impact credit include deposits, interest rates, costs, capital levels, and macroeconomic conditions.
This document summarizes a study that investigated the determinants of commercial bank lending behavior in Nigeria. The study aimed to test how common factors like deposits, investments, interest rates, reserve requirements, and liquidity ratios affect bank lending. Regression analysis found the model to be significant, with deposits having the greatest impact on lending. The study suggests banks focus on deposit mobilization to enhance lending performance and develop strategic plans.
This thesis investigates the determinants of lending behavior among commercial banks in Ethiopia. The author conducted a case study of eight commercial banks over the period of 2001 to 2013. Through a panel data regression analysis, the author found that deposit volume and bank size had a positive and significant impact on loans and advances. Liquidity ratio and interest rate had a negative and significant impact. Cash reserve requirements and inflation rate had a positive impact, though the relationship was unexpected. GDP growth did not have a statistically significant impact. The study suggests commercial banks focus on deposit mobilization to enhance lending.
This document summarizes a study that uses a matched sample of individual loans, borrowers, and banks to investigate the effect of banks' financial health on the cost of loans for borrowers, while controlling for borrower risk and information costs. The key findings are:
1) Borrowers pay higher interest rates on loans from low-capital banks compared to well-capitalized banks, even after controlling for borrower risk.
2) This effect is most significant for borrowers where information costs are likely important.
3) When borrowing from weak banks, these high-information-cost borrowers tend to hold more cash, indicating costs to switching lenders.
4) The results provide support for
This document summarizes a research paper that analyzed the determinants of credit risk in the Indonesian banking industry. Specifically, it examined how bank-specific variables like bank size, profitability, capital adequacy, and ownership structure influence the level of non-performing loans (NPL), which is used as a measure of credit risk. The document reviews several previous studies that also analyzed the relationship between credit risk and bank-specific factors in other countries. It then outlines the methodology that will be used in the research, including the data collection and analysis methods.
An analysis of loan portfolio management on organization profitability case o...Alexander Decker
This document summarizes a research study that investigated the determinants of profitability among commercial banks in Kenya. Specifically, it examined the impact of loan portfolio management, interest expenses, and administrative costs on bank profitability.
The introduction provides background on the important role of banks in financing economic activity and intermediating funds. It also discusses previous research that has identified various internal and external factors that influence bank profitability, including capital ratios, loan loss provisions, interest rates, and expense control.
The document then reviews literature related to the factors being studied - loan portfolio and its relationship to bank liquidity and risk/profit tradeoffs, how interest rates impact bank revenues and yields, and the link between administrative costs and managerial
This summary provides the key points from the document in 3 sentences:
The document discusses a study that investigates the determinants of bank lending behavior in Ghana. Using an econometric model, the study finds that bank size, capital structure, and competition have a positive relationship with bank lending, while macroeconomic indicators like interest rates and exchange rates negatively impact lending. The study contributes to understanding how bank-specific, macroeconomic, and industry factors influence bank lending decisions in an emerging market context like Ghana.
This document summarizes a study that examined the determinants of commercial bank lending in Ethiopia between 2005-2011. The study tested whether bank size, credit risk, GDP, investment, deposit, interest rate, liquidity ratio, and cash reserve requirements influenced bank lending. It found that bank size, credit risk, GDP, and liquidity ratio had a significant relationship with lending, but deposit, investment, interest rate, and cash reserves did not. The study suggests banks focus on managing credit risk and liquidity to support lending.
This document discusses empirical research on the determinants of bank lending across countries. It proposes estimating equations to model domestic credit levels based on bank balance sheet and capital requirements approaches. The analysis will use data from 146 countries over 1990-2013 to examine how economic growth, banking system health, and external capital flows influence domestic credit after controlling for other factors. Key determinants expected to impact credit include deposits, interest rates, costs, capital levels, and macroeconomic conditions.
This document summarizes a study that investigated the determinants of commercial bank lending behavior in Nigeria. The study aimed to test how common factors like deposits, investments, interest rates, reserve requirements, and liquidity ratios affect bank lending. Regression analysis found the model to be significant, with deposits having the greatest impact on lending. The study suggests banks focus on deposit mobilization to enhance lending performance and develop strategic plans.
This thesis investigates the determinants of lending behavior among commercial banks in Ethiopia. The author conducted a case study of eight commercial banks over the period of 2001 to 2013. Through a panel data regression analysis, the author found that deposit volume and bank size had a positive and significant impact on loans and advances. Liquidity ratio and interest rate had a negative and significant impact. Cash reserve requirements and inflation rate had a positive impact, though the relationship was unexpected. GDP growth did not have a statistically significant impact. The study suggests commercial banks focus on deposit mobilization to enhance lending.
This document summarizes a study that uses a matched sample of individual loans, borrowers, and banks to investigate the effect of banks' financial health on the cost of loans for borrowers, while controlling for borrower risk and information costs. The key findings are:
1) Borrowers pay higher interest rates on loans from low-capital banks compared to well-capitalized banks, even after controlling for borrower risk.
2) This effect is most significant for borrowers where information costs are likely important.
3) When borrowing from weak banks, these high-information-cost borrowers tend to hold more cash, indicating costs to switching lenders.
4) The results provide support for
This document summarizes a research paper that analyzed the determinants of credit risk in the Indonesian banking industry. Specifically, it examined how bank-specific variables like bank size, profitability, capital adequacy, and ownership structure influence the level of non-performing loans (NPL), which is used as a measure of credit risk. The document reviews several previous studies that also analyzed the relationship between credit risk and bank-specific factors in other countries. It then outlines the methodology that will be used in the research, including the data collection and analysis methods.
An analysis of loan portfolio management on organization profitability case o...Alexander Decker
This document summarizes a research study that investigated the determinants of profitability among commercial banks in Kenya. Specifically, it examined the impact of loan portfolio management, interest expenses, and administrative costs on bank profitability.
The introduction provides background on the important role of banks in financing economic activity and intermediating funds. It also discusses previous research that has identified various internal and external factors that influence bank profitability, including capital ratios, loan loss provisions, interest rates, and expense control.
The document then reviews literature related to the factors being studied - loan portfolio and its relationship to bank liquidity and risk/profit tradeoffs, how interest rates impact bank revenues and yields, and the link between administrative costs and managerial
This summary provides the key points from the document in 3 sentences:
The document discusses a study that investigates the determinants of bank lending behavior in Ghana. Using an econometric model, the study finds that bank size, capital structure, and competition have a positive relationship with bank lending, while macroeconomic indicators like interest rates and exchange rates negatively impact lending. The study contributes to understanding how bank-specific, macroeconomic, and industry factors influence bank lending decisions in an emerging market context like Ghana.
Credit Risk and Financial Performance of Commercial Banks in Kenyarobert siriba
This document discusses a study on the relationship between credit risk and financial performance of commercial banks in Kenya from 2014-2018. It provides background on credit risk and how it can be measured using non-performing loans, loan loss provisions, and loans and advances. The study found that non-performing loans and loan loss provision had non-significant negative effects on bank profitability, while loans and advances had a significant positive impact. The document reviews relevant literature and theories around credit risk and financial performance.
How corporate diversification affects excess value and excess profitabilityAlexander Decker
This document summarizes a study that examined the relationship between excess value and excess profitability among deposit money banks in Nigeria from 1998-2007. The study used regression and correlation analyses of accounting data from 18 sampled banks. The analyses revealed a positive and statistically significant correlation, indicating a relationship between excess value and excess profitability for both diversified and standalone banks. Prior literature on the costs and benefits of corporate diversification was reviewed. The study aimed to measure this relationship for Nigerian banks and hypothesized no significant relationship, which the analyses did not support.
The purpose of this study is to measure the impact of penetration of foreign banks in the Indonesian banking industry. The measured effects are limited to competition and efficiency during the years 2000-2011, during which was a recovery from the economic crisis in Indonesia. Panzar-Rosse measures the competition and Conjectural Variation approaches. The efficiency is measured by the Standard Profit Efficiency approach. By using panel regression method with SUR (Seemingly Unrelated Regression), we found that penetration of foreign banks will increase competition and efficiency of banking in Indonesia, especially to medium and small banks through spillover effect on domestic banking system. The increase in total assets, total loans and the amount of third party funds held by foreign banks in Indonesia will increase competition and efficiency of banks in Indonesia.
Analysis of recovery determinants of defaulted mortgages in nigerian lending ...Alexander Decker
This document summarizes a research paper that analyzed the determinants of recovery of defaulted mortgage loans in the Nigerian lending industry. The study used logistic regression analysis on data from 3,197 defaulted mortgages from 1999-2011 at commercial banks and primary mortgage institutions in Nigeria. The results showed that GDP growth, borrower status, borrower default history, year as a borrower, bank relationship, loan supervision, collateral age, and collateral location were positively associated with loan recovery rates. Meanwhile, inflation growth, interest rates, collateral priority, and collateral revaluation were negatively associated with recovery rates. Other factors like loan-to-value ratio, loan size, and loan duration had insignificant but positive effects on recovery possibility.
Credit exposure and lending decision quality of private commercial banks in b...Alexander Decker
This document summarizes a research study that examined the level of credit exposure and lending decision quality of local private commercial banks in Bangladesh from 2007-2011. The study used five financial ratios to measure credit performance: non-performing loan to total loan ratio, loan loss reserve to total loan ratio, loan loss reserve to non-performing loan ratio, capital adequacy ratio, and tier 1 capital ratio. An analysis of variance found that the non-performing loan to total loan ratio, loan loss reserve to total loan ratio, and loan loss reserve to non-performing loan ratio differed significantly between conventional and Islamic banks, while the capital adequacy ratio and tier 1 capital ratio did not differ significantly. The study also found an
This document summarizes a theoretical model examining the effects of small regional banks on local economic growth. The model shows that small regional banks are more effective than large interregional banks at promoting economic growth in underdeveloped regions. This is because small regional banks have lower screening and monitoring costs of local borrowers compared to large banks. The model is then empirically tested using bank and regional economic data from Germany, finding that small regional banks play an important role in enhancing economic development in less developed German regions.
Macroeconomic and industry determinants of interest rate spread empirical evi...Alexander Decker
This document summarizes a study that examines the bank-specific, industry-specific, and macroeconomic factors that influence interest rate spreads in Ghanaian commercial banks from 1990 to 2010. The study uses data from 33 commercial banks over this 21-year period. Key findings include that interest rate spreads are significantly influenced by bank ownership, management efficiency, GDP per capita, and government securities. Government borrowing also influences spreads but has a negative effect. The paper aims to identify important determinants of interest rate spreads for central banks, commercial banks, and economic managers in Ghana.
Empirical analysis of the impact of post merger on nigerian banks profitabilityAlexander Decker
This research examines the impact of post-merger performance on Nigerian banks using data from Access Bank and United Bank for Africa between 2005-2012. The study finds that post-merger performance has not significantly impacted banks' profitability. It recommends that only strong banks merge to form mega-banks to achieve promised synergies, and that unethical banking practices be discouraged. The document provides background on reasons for increasing mergers and acquisitions in Nigeria's banking sector, as well as challenges that can arise from the consolidation process.
This document provides background information on a study about the effects of inflation on the profitability of commercial banks in Uganda. It discusses inflation and how it can reduce purchasing power. It also defines key terms like interest rates, lending, and consumer price index. The problem statement indicates that despite financial reforms, commercial bank performance in Uganda has remained poor due to high inflation, interest rates, and exchange rate volatility. The specific objectives are to determine the effects of exchange rates, interest rates, and consumer price index on bank profitability. The significance is that bank management can use the study to understand inflation's impacts and develop strategies to handle its effects.
This document analyzes the performance and competitive position of state-owned commercial banks in Bangladesh from 2009-2012. It finds that while these banks have achieved stable growth in deposits, loans, and branches, they have struggled to improve key financial metrics like net profit, returns, and reducing non-performing loans. Trend analysis found positive growth in some areas but negative trends or low correlation for other financial indicators. The study aims to evaluate these banks' performance, conduct competitive analysis, and provide recommendations for improvement. Secondary data is used from annual reports and other sources to analyze metrics and compare the four largest state-owned commercial banks in Bangladesh.
Analysis Of The Effect Of Capital, Credit Risk and Profitability To Implementation Banking Intermediation Function(Study On Regional Development Bank All Over Indonesia Year 2012 )
Causes of Non-Performing Loan: A Study on State Owned Commercial Bank of Bang...Dhaka university
Research Objectives and Possible Research Questions, Classified Loan, Theories: Ethical theory, Moral Hazard, Political Power, Transaction Cost, Stakeholder, Conceptual framework, Research Position, References and Reviewed Literature
The aim of this paper is to examine the impact of bank minimum capital requirement on credit supply in Ivory Coast, over the period from 1982 to 2016. To this end, the ARDL method was used to study the nature of the relationship between our explanatory variables and bank credit supply in Ivory Coast. The study indicates some major results. The results showed that in the short term, real GDP per capita and bank size influence credit supply in Ivory Coast. Real GDP per capita acts negatively on credit supply in the short run while bank size has a positive influence on banks’ capacity to finance the economy. In the long run, the Cooke ratio and the openness rate have an impact on bank credit supply in Ivory Coast. The recovery of bank minimum capital requirements positively influences bank credit supply while the openness of the economy negatively impacts banks’ ability to offer bank credit. In terms of economic policies implications, monetary authorities must enforce and respect the policy of increasing bank minimum capital requirements. They must encourage banks to increase their banking assets.
This paper introduces an imperfectly competitive banking sector into a DSGE model to study the role of credit supply factors in business cycle fluctuations in the euro area. Banks issue loans to households and firms, obtain funding via deposits, and accumulate capital from retained earnings. Margins on loans depend on bank capital ratios and interest rate stickiness. Estimating the model with euro area data from 1999-2008, the paper finds that:
1) Shocks originating in the banking sector explain most of the output fall in 2008, while macroeconomic shocks played a smaller role.
2) An unexpected reduction in bank capital can significantly impact the real economy, especially investment.
3) Financial frictions amplify monetary policy effects,
This document outlines research questions for predicting loan defaults. It asks: (1) Can a model predict charge-offs and what variables influence them? (2) What are average charge-offs per month/year? (3) What are average charge-off amounts? Additional questions examine differences between personal and business loans, characteristics of defaulters, and bank-level factors. Theoretical ideas to explore include income, indebtedness, wealth, interest rates, and fiscal policies. The goal is to understand loan defaults and build predictive models.
Credit default, also known as non-performing loan (NPL), refers to a loan where payments of interest and principal are past due by 90 days or more. There are several causes of credit default in banks, including macroeconomic factors, issues related to lending, business-related problems, and factors related to entrepreneurs. Credit default can lead banks to have efficiency problems, a negative relationship between NPLs and performance, and credit crunch situations. Some remedies for banks include proper risk assessment, motivating loan performers, forming recovery agencies, monitoring collaterals, training staff, and balancing risk and return through investment portfolios.
This document discusses a study analyzing the financial performance of selected private sector banks in Bangladesh in light of capital levels. The study examines the impact of factors like total capital/assets, risk-weighted assets, core capital/assets, equity capital/assets, and cost income ratio on the banks' returns on assets and equity. Annual data from 2008-2012 for three banks was used in multiple regression analysis. The study aims to determine if capital adequacy and cost income ratio influence bank profitability, and if Basel II requirements have been effective in reducing non-performing loans and bankruptcy risks in Bangladeshi banks. Previous literature suggests capital adequacy can impact lending, performance, and bankruptcy risk, but markets may better determine optimal capital levels.
This document provides background information and context for a study examining the determinants of banking crises in Nigeria. It begins with an introduction that discusses the important role of banks in economic growth and development. However, it notes that banking nowadays faces many challenges that can lead to crises.
The document then reviews literature on past banking crises in Nigeria. It discusses factors that previous studies have identified as contributing to crises, such as lack of transparency, capital inadequacy, and non-performing loans. It also outlines the objectives, research questions, and hypotheses that will guide the current study.
Finally, the document provides operational definitions of key terms and concludes Chapter 1 by discussing the significance, scope, and limitations
Non Performing Loan: Impact of Internal and External Factor (Evidence in Indo...inventionjournals
ABSTRACT : Most banks in Indonesia as emerging market still rely on credit as the main income to finance their operations. But not all loans disbursed by banks are free of risk, some of them have a considerable risk and can threaten the health of the bank.NPL levels at Commercial Bank Indonesia over the past five years 1/1/2009-12/31/2013) shows a stable condition. But inversely proportional happen to the 26 Regional Development Banks (BPD), which NPL,since 2011 has continuously increased. It was reaching 3:49 % in June 2014 and was predicted to continue to rise. This study aims to study the influence of internal and external banks factors on the level of non-performing loans (NPL) in the Regional Development Bank (BPD) in Indonesia. This study is a quantitative research using panel data regression analysis with the study period from 2009 to 2013. The object of this study was 26 banks. Factors examined its effect on the NPL is a measure of a bank (SIZE), the capital adequacy ratio (CAR), the level of bank efficiency (ROA), the growth of gross domestic product (GDP), and the rate of inflation. Estimation model used is panel data models Random Effects Model (REM). The results of this study concluded that the level of efficiency of the bank (ROA) has a positive significant effect on NPL. The result of this study clearly warrant future studies.
This document is a thesis on liquidity management at Bank Al-Sharq in Syria. It begins with an introduction and acknowledgments. It then provides an abstract that outlines studying liquidity management procedures at Bank Al-Sharq when liquidity ratios fall below authorized limits, and the impact on bank profitability. The document also contains chapters on liquidity management in traditional banks, liquidity risks, the role of Syria's Central Bank in regulating liquidity ratios, and a specific analysis of liquidity management at Bank Al-Sharq. It concludes with recommendations for improving liquidity management and increasing profitability.
This document provides an executive summary of a master's project analyzing the nexus between water, energy, and food security in developing countries. The project examines these issues for Ethiopia, Timor-Leste, Sri Lanka, and Cambodia. It finds that these countries face challenges of lack of access to affordable energy and electricity, dependence on fossil fuels, limited and contaminated water resources, and vulnerability of food security to climate variability impacts on water and energy. The project conducted country case studies and developed recommendations to build capacity for integrated improvement of the food, water, and energy sectors through sustainable solutions that meet development needs.
Credit Risk and Financial Performance of Commercial Banks in Kenyarobert siriba
This document discusses a study on the relationship between credit risk and financial performance of commercial banks in Kenya from 2014-2018. It provides background on credit risk and how it can be measured using non-performing loans, loan loss provisions, and loans and advances. The study found that non-performing loans and loan loss provision had non-significant negative effects on bank profitability, while loans and advances had a significant positive impact. The document reviews relevant literature and theories around credit risk and financial performance.
How corporate diversification affects excess value and excess profitabilityAlexander Decker
This document summarizes a study that examined the relationship between excess value and excess profitability among deposit money banks in Nigeria from 1998-2007. The study used regression and correlation analyses of accounting data from 18 sampled banks. The analyses revealed a positive and statistically significant correlation, indicating a relationship between excess value and excess profitability for both diversified and standalone banks. Prior literature on the costs and benefits of corporate diversification was reviewed. The study aimed to measure this relationship for Nigerian banks and hypothesized no significant relationship, which the analyses did not support.
The purpose of this study is to measure the impact of penetration of foreign banks in the Indonesian banking industry. The measured effects are limited to competition and efficiency during the years 2000-2011, during which was a recovery from the economic crisis in Indonesia. Panzar-Rosse measures the competition and Conjectural Variation approaches. The efficiency is measured by the Standard Profit Efficiency approach. By using panel regression method with SUR (Seemingly Unrelated Regression), we found that penetration of foreign banks will increase competition and efficiency of banking in Indonesia, especially to medium and small banks through spillover effect on domestic banking system. The increase in total assets, total loans and the amount of third party funds held by foreign banks in Indonesia will increase competition and efficiency of banks in Indonesia.
Analysis of recovery determinants of defaulted mortgages in nigerian lending ...Alexander Decker
This document summarizes a research paper that analyzed the determinants of recovery of defaulted mortgage loans in the Nigerian lending industry. The study used logistic regression analysis on data from 3,197 defaulted mortgages from 1999-2011 at commercial banks and primary mortgage institutions in Nigeria. The results showed that GDP growth, borrower status, borrower default history, year as a borrower, bank relationship, loan supervision, collateral age, and collateral location were positively associated with loan recovery rates. Meanwhile, inflation growth, interest rates, collateral priority, and collateral revaluation were negatively associated with recovery rates. Other factors like loan-to-value ratio, loan size, and loan duration had insignificant but positive effects on recovery possibility.
Credit exposure and lending decision quality of private commercial banks in b...Alexander Decker
This document summarizes a research study that examined the level of credit exposure and lending decision quality of local private commercial banks in Bangladesh from 2007-2011. The study used five financial ratios to measure credit performance: non-performing loan to total loan ratio, loan loss reserve to total loan ratio, loan loss reserve to non-performing loan ratio, capital adequacy ratio, and tier 1 capital ratio. An analysis of variance found that the non-performing loan to total loan ratio, loan loss reserve to total loan ratio, and loan loss reserve to non-performing loan ratio differed significantly between conventional and Islamic banks, while the capital adequacy ratio and tier 1 capital ratio did not differ significantly. The study also found an
This document summarizes a theoretical model examining the effects of small regional banks on local economic growth. The model shows that small regional banks are more effective than large interregional banks at promoting economic growth in underdeveloped regions. This is because small regional banks have lower screening and monitoring costs of local borrowers compared to large banks. The model is then empirically tested using bank and regional economic data from Germany, finding that small regional banks play an important role in enhancing economic development in less developed German regions.
Macroeconomic and industry determinants of interest rate spread empirical evi...Alexander Decker
This document summarizes a study that examines the bank-specific, industry-specific, and macroeconomic factors that influence interest rate spreads in Ghanaian commercial banks from 1990 to 2010. The study uses data from 33 commercial banks over this 21-year period. Key findings include that interest rate spreads are significantly influenced by bank ownership, management efficiency, GDP per capita, and government securities. Government borrowing also influences spreads but has a negative effect. The paper aims to identify important determinants of interest rate spreads for central banks, commercial banks, and economic managers in Ghana.
Empirical analysis of the impact of post merger on nigerian banks profitabilityAlexander Decker
This research examines the impact of post-merger performance on Nigerian banks using data from Access Bank and United Bank for Africa between 2005-2012. The study finds that post-merger performance has not significantly impacted banks' profitability. It recommends that only strong banks merge to form mega-banks to achieve promised synergies, and that unethical banking practices be discouraged. The document provides background on reasons for increasing mergers and acquisitions in Nigeria's banking sector, as well as challenges that can arise from the consolidation process.
This document provides background information on a study about the effects of inflation on the profitability of commercial banks in Uganda. It discusses inflation and how it can reduce purchasing power. It also defines key terms like interest rates, lending, and consumer price index. The problem statement indicates that despite financial reforms, commercial bank performance in Uganda has remained poor due to high inflation, interest rates, and exchange rate volatility. The specific objectives are to determine the effects of exchange rates, interest rates, and consumer price index on bank profitability. The significance is that bank management can use the study to understand inflation's impacts and develop strategies to handle its effects.
This document analyzes the performance and competitive position of state-owned commercial banks in Bangladesh from 2009-2012. It finds that while these banks have achieved stable growth in deposits, loans, and branches, they have struggled to improve key financial metrics like net profit, returns, and reducing non-performing loans. Trend analysis found positive growth in some areas but negative trends or low correlation for other financial indicators. The study aims to evaluate these banks' performance, conduct competitive analysis, and provide recommendations for improvement. Secondary data is used from annual reports and other sources to analyze metrics and compare the four largest state-owned commercial banks in Bangladesh.
Analysis Of The Effect Of Capital, Credit Risk and Profitability To Implementation Banking Intermediation Function(Study On Regional Development Bank All Over Indonesia Year 2012 )
Causes of Non-Performing Loan: A Study on State Owned Commercial Bank of Bang...Dhaka university
Research Objectives and Possible Research Questions, Classified Loan, Theories: Ethical theory, Moral Hazard, Political Power, Transaction Cost, Stakeholder, Conceptual framework, Research Position, References and Reviewed Literature
The aim of this paper is to examine the impact of bank minimum capital requirement on credit supply in Ivory Coast, over the period from 1982 to 2016. To this end, the ARDL method was used to study the nature of the relationship between our explanatory variables and bank credit supply in Ivory Coast. The study indicates some major results. The results showed that in the short term, real GDP per capita and bank size influence credit supply in Ivory Coast. Real GDP per capita acts negatively on credit supply in the short run while bank size has a positive influence on banks’ capacity to finance the economy. In the long run, the Cooke ratio and the openness rate have an impact on bank credit supply in Ivory Coast. The recovery of bank minimum capital requirements positively influences bank credit supply while the openness of the economy negatively impacts banks’ ability to offer bank credit. In terms of economic policies implications, monetary authorities must enforce and respect the policy of increasing bank minimum capital requirements. They must encourage banks to increase their banking assets.
This paper introduces an imperfectly competitive banking sector into a DSGE model to study the role of credit supply factors in business cycle fluctuations in the euro area. Banks issue loans to households and firms, obtain funding via deposits, and accumulate capital from retained earnings. Margins on loans depend on bank capital ratios and interest rate stickiness. Estimating the model with euro area data from 1999-2008, the paper finds that:
1) Shocks originating in the banking sector explain most of the output fall in 2008, while macroeconomic shocks played a smaller role.
2) An unexpected reduction in bank capital can significantly impact the real economy, especially investment.
3) Financial frictions amplify monetary policy effects,
This document outlines research questions for predicting loan defaults. It asks: (1) Can a model predict charge-offs and what variables influence them? (2) What are average charge-offs per month/year? (3) What are average charge-off amounts? Additional questions examine differences between personal and business loans, characteristics of defaulters, and bank-level factors. Theoretical ideas to explore include income, indebtedness, wealth, interest rates, and fiscal policies. The goal is to understand loan defaults and build predictive models.
Credit default, also known as non-performing loan (NPL), refers to a loan where payments of interest and principal are past due by 90 days or more. There are several causes of credit default in banks, including macroeconomic factors, issues related to lending, business-related problems, and factors related to entrepreneurs. Credit default can lead banks to have efficiency problems, a negative relationship between NPLs and performance, and credit crunch situations. Some remedies for banks include proper risk assessment, motivating loan performers, forming recovery agencies, monitoring collaterals, training staff, and balancing risk and return through investment portfolios.
This document discusses a study analyzing the financial performance of selected private sector banks in Bangladesh in light of capital levels. The study examines the impact of factors like total capital/assets, risk-weighted assets, core capital/assets, equity capital/assets, and cost income ratio on the banks' returns on assets and equity. Annual data from 2008-2012 for three banks was used in multiple regression analysis. The study aims to determine if capital adequacy and cost income ratio influence bank profitability, and if Basel II requirements have been effective in reducing non-performing loans and bankruptcy risks in Bangladeshi banks. Previous literature suggests capital adequacy can impact lending, performance, and bankruptcy risk, but markets may better determine optimal capital levels.
This document provides background information and context for a study examining the determinants of banking crises in Nigeria. It begins with an introduction that discusses the important role of banks in economic growth and development. However, it notes that banking nowadays faces many challenges that can lead to crises.
The document then reviews literature on past banking crises in Nigeria. It discusses factors that previous studies have identified as contributing to crises, such as lack of transparency, capital inadequacy, and non-performing loans. It also outlines the objectives, research questions, and hypotheses that will guide the current study.
Finally, the document provides operational definitions of key terms and concludes Chapter 1 by discussing the significance, scope, and limitations
Non Performing Loan: Impact of Internal and External Factor (Evidence in Indo...inventionjournals
ABSTRACT : Most banks in Indonesia as emerging market still rely on credit as the main income to finance their operations. But not all loans disbursed by banks are free of risk, some of them have a considerable risk and can threaten the health of the bank.NPL levels at Commercial Bank Indonesia over the past five years 1/1/2009-12/31/2013) shows a stable condition. But inversely proportional happen to the 26 Regional Development Banks (BPD), which NPL,since 2011 has continuously increased. It was reaching 3:49 % in June 2014 and was predicted to continue to rise. This study aims to study the influence of internal and external banks factors on the level of non-performing loans (NPL) in the Regional Development Bank (BPD) in Indonesia. This study is a quantitative research using panel data regression analysis with the study period from 2009 to 2013. The object of this study was 26 banks. Factors examined its effect on the NPL is a measure of a bank (SIZE), the capital adequacy ratio (CAR), the level of bank efficiency (ROA), the growth of gross domestic product (GDP), and the rate of inflation. Estimation model used is panel data models Random Effects Model (REM). The results of this study concluded that the level of efficiency of the bank (ROA) has a positive significant effect on NPL. The result of this study clearly warrant future studies.
This document is a thesis on liquidity management at Bank Al-Sharq in Syria. It begins with an introduction and acknowledgments. It then provides an abstract that outlines studying liquidity management procedures at Bank Al-Sharq when liquidity ratios fall below authorized limits, and the impact on bank profitability. The document also contains chapters on liquidity management in traditional banks, liquidity risks, the role of Syria's Central Bank in regulating liquidity ratios, and a specific analysis of liquidity management at Bank Al-Sharq. It concludes with recommendations for improving liquidity management and increasing profitability.
This document provides an executive summary of a master's project analyzing the nexus between water, energy, and food security in developing countries. The project examines these issues for Ethiopia, Timor-Leste, Sri Lanka, and Cambodia. It finds that these countries face challenges of lack of access to affordable energy and electricity, dependence on fossil fuels, limited and contaminated water resources, and vulnerability of food security to climate variability impacts on water and energy. The project conducted country case studies and developed recommendations to build capacity for integrated improvement of the food, water, and energy sectors through sustainable solutions that meet development needs.
Proposed topic of the res an emperical analysis on interest rate risk managem...tesfatsion tefera
Risk is defined as anything that can create hindrances in the way of achievement of certain objectives. It can be because of either internal factors or external factors, depending upon the type of risk that exists within a particular situation. Exposure to that risk can make a situation more critical. A better way to deal with such a situation; is to take certain proactive measures to identify any kind of risk that can result in undesirable outcomes. In simple terms, it can be said that managing a risk in advance is far better than waiting for its occurrence. Risk Management is a measure that is used for identifying, analyzing and then responding to a particular risk. It is a process that is continuous in nature and a helpful tool in decision making process. According to the Higher Education Funding Council for England (HEFCE), Risk Management is not just used for ensuring the reduction of the probability of bad happenings but it also covers the increase in likeliness of occurring good things. A model called “Prospect Theory” states that a person is more likely to take on the risk than to suffer a sure loss.
Review on Research paper 'Determinants of Financial Performance of Commercial...Saumya Singh
This study examined the determinants of financial performance of commercial banks in Kenya from 2001-2010. It found that bank-specific factors like capital adequacy, asset quality, and management efficiency significantly impacted performance measures like return on assets and equity. However, liquidity and macroeconomic variables did not have significant effects. Additionally, the study found that ownership structure (domestic vs. foreign banks) did not moderate financial performance. Thus, internal bank management decisions were more important determinants of performance than external macroeconomic conditions.
This document provides an assessment of value added tax (VAT) administration practices in Yirgalem town, Ethiopia from 2004-2006. It was submitted by Abraham Sewnet to fulfill requirements for a B.A. degree in accounting and finance from Hawassa University. The study focuses on identifying challenges in VAT administration and compliance from the perspectives of taxpayers and tax authorities. Literature on VAT is reviewed, including definitions, types of VAT, terminology, and theoretical frameworks. The study aims to assess factors creating administrative problems, compliance with rules and regulations, major issues in VAT collection, and impacts on prices and customer behavior. It is intended to assist policymakers and taxpayers in understanding VAT and improving the system.
Whole Foods is the leading natural and organic supermarket, founded in 1978. It has grown to 264 stores in the US, 6 in Canada, and 5 in the UK, with $6.6 billion in annual revenues and 50,000 employees. While Whole Foods has strong brand recognition and product quality, its growth has been relatively slow and it faces threats from competitors expanding into organic products. The document analyzes Whole Foods' internal strengths and weaknesses as well as external opportunities and threats, and recommends the strategic plan of expanding into new markets through market development to address its weakness of being concentrated in the US market and pursue opportunities for growth.
CAIIB Super Notes: Bank Financial Management: Module D: Balance Sheet Managem...PsychoTech Services
This document discusses liquidity management in banks. It defines liquidity as a bank's ability to meet deposit withdrawals and fund loan demands. The key aspects of liquidity management covered include:
1. Measuring and managing liquidity risk using the stock and flow approaches. The flow approach involves constructing a maturity ladder to assess net funding requirements over time horizons.
2. Setting tolerance limits for liquidity risk metrics like loan-to-deposit ratios to ensure adequate liquidity buffer.
3. Developing a liquidity risk management framework involving board oversight, risk measurement processes, and contingency planning for liquidity crises.
4. Managing liquidity in foreign currencies requires decisions around centralized vs decentralized management
Determinants of education expenditures and private vs. public divide in educa...Economic Research Forum
This study examines the determinants of education expenditures in Turkey using household survey data from 2003, 2007, and 2012. Tobit regression models are estimated separately for income quartiles. The results show that the income elasticity of education expenditures peaks in middle-income households and decreases at both ends of the income distribution. Specifically, the elasticity is less than one for the lowest-income households but greater than one for middle-income households, providing evidence that the demand for education rises more than proportionately with income for middle-income families. The estimates vary somewhat across years but generally show this pattern.
Whole Foods Market was founded in 1980 in Austin, Texas and has since grown to over 300 stores in North America and the UK through both organic growth and acquisitions. It aims to be the highest quality natural and organic foods retailer through its core values of satisfying customers, supporting employees, and caring for communities and the environment. While it faces threats from increased competition and costs, its strengths in brand reputation, customer service, and private label products position it for continued success if it focuses on differentiating its high-quality offerings and finding strategic cost savings.
This strategic plan document provides an overview of Whole Foods Markets' performance from 2005-2009. It summarizes key financial metrics like sales, store count, and comparable store sales growth. It also analyzes the organic grocery industry including competitive positioning, market trends of slowing growth, and shifts in strategy from traditional grocers. An internal analysis examines Whole Foods' product lifecycle, value chain, promotional strategy, and a SWOT analysis identifying strengths in quality and brand reputation but also weaknesses in high prices and inventory costs.
Volume of Deposits, A determinant of Total Long-term Loans Advanced by Commer...iosrjce
Commercial banks have exponentially increased their total loans advanced over the period 2002-
2013. However commercial banks in Kenya have shown varying long term lending behavior. The main objective
of this study was to establish the effect of determinants of long term lending in the Kenyan banking industry, a
case of Bungoma County. This study was guided by the following specific objective; to determine the effect of
volume of deposit on total loan advanced, of selected commercial banks in Kenya. The target population
comprised 13 commercial banks in Bungoma County with a sample size of 52 respondents. From the findings,
for every unit increase in volume of deposits, a 10.9%, unit increase in total loans advanced is predicted. The
model hypothesizes that there is functional relationship between the dependent variable and the independent
variable. The study then recommends that commercial banks should focus on mobilizing more deposits as this
will enhance their lending performance.
This study examined the effect of interest rate deregulation on Nigerian banking system. The study adopted Augmented Dickey – Fuller (ADF), Bound test and Autoregressive Distributed Lag (ARDL). The correlation result indicated that of the correlation matrix that all the explanatory variables (interest rate, lending rate and deposit rate) had effect on loan and advances. The results of the unit root test revealed that interest rate and lending rate were stationary at level 1(0) while loan and advances and deposit rate were stationary at first difference 1(1). Also the results of the bound test revealed that there exist long run equilibrium relationship among the variables. The result of the ARDL indicated that interest rate had significant effect on loan and advances while lending rate and deposit rate had an insignificant effect on loan and advances. It was concluded that banks should monitor the level of loan and advances in respect to major ratios for effective performance. The study thus, recommended that banks should monitor lending rate which should be fixed in order to enhance lending performance. Regulatory authority should ensure that macroeconomic variables such as money supply, liquidity ratio, lending rate, monetary policy rate are effectively managed to enhance bank performance.
The literature shows little evidence on the effects of the business model upon the volatility of banks in developing and fast growing economies. Hence, this study examines the effects of busi-ness model choice on bank’s stability in ASEAN countries. Using GMM and other robust econo-metric methods on the sample of 99 joint stock commercial banks, we find significant and nega-tive impacts of diversification model in which bank shifts toward non – interest and fee – based activities. We also find that the impacts are different between two groups of countries. For Vi-etnam, Indonesia and the Philippines, the diversification entails negative impacts on the stability while demonstrating positive impacts for Thailand and Malaysia. Upon the findings, we draw policy implications for a more sustainable development in ASEAN banking business.
DIVERGENCE IN COMMERCIAL BANK LENDING DIMENSIONS: EMPIRICAL STUDY ON ETHIOPIAIAEME Publication
Quite a number of studies in the past in various countries accentuated the significance of demographic variables in lending decisions of bank-officials. Do the dimensions of commercial bank lending diverge by gender, age-group, banking experience, sector of the bank, and designation held by bank-officials in Ethiopia? This is the key issue that is tried to be answered by empirical testing in this study. For the purpose of this descriptive study of cross-sectional design, data were collected by means of a pilot-tested questionnaire from bank-officials across the country between February and July 2015.
The impact of Non-performing Loans and Bank Performance in Nigeriainventionjournals
This study investigated the relationship between non-performing loans and bank performance in Nigeria for the period 1994-2014. The study employed ADF Unit Root test, descriptive statistics, and multiple regression techniques to analyze data collected for the study from the CBN, NDIC and annual reports of listed banks. The results of the study show that BAL and DOL had statistically negative significant influence on ROCE, while SUL had statistically negative insignificant impact on ROCE. These results show that high level of non-performing loans would reduce the performance of banks in the long run in Nigeria. The study therefore recommended that credit reporting agencies and supervising authorities should be strengthen in order to reduce the high level of non-performing loans in the banking sector of Nigeria.
Profitability Determinants of Go-Public Bank in Indonesia: Empirical Evidenc...inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online
This document summarizes a research paper that assesses the factors contributing to non-performing loans in Kenyan banks. It discusses how non-performing loans negatively impact bank profitability, liquidity, and stability. It outlines the research objectives, which are to identify the key factors leading to bad loans in Kenya, establish the effects of non-performing loans on banks, analyze trends in bad loans before and after the introduction of credit reference bureaus, and determine efforts to reduce risks from non-performing assets. The significance of studying non-performing loans for policymakers, banks, and future research is also mentioned.
Asset liability management and commercial banks profitability in ethiopiaAlexander Decker
The document examines the effect of asset liability management (ALM) on the profitability of commercial banks in Ethiopia. It uses a statistical cost accounting (SCA) model to analyze the relationship between banks' profitability, measured by return on assets (ROA), and their balance sheet items like loans, deposits and other assets/liabilities. The analysis finds that most assets positively impact profitability while liabilities generally have a negative effect. It also incorporates macroeconomic variables like GDP growth and inflation, finding GDP has a negative influence on bank profits. The study aims to help banks and policymakers better understand factors affecting bank performance in Ethiopia's developing financial system.
Effect of Liquidity Risk on Performance of Deposit Money Banks in Nigeriaijtsrd
This study examines the effect of the credit risk ratio on the financial performance of deposit money banks in Nigeria. Ex Post Facto research design was employed for the study. Sample sizes of five banks were selected from twenty banks quoted on the Nigerian Stock Exchange. Data were extracted from annual reports and accounts of the selected banks from 2010 to 2019. Using E view statistical tool to test the hypothesis, the study found that credit risk ratio significantly influences the financial performance of quoted deposit money banks in Nigeria It was recommended that bank managers should constantly engage in rigorous credit analysis, checking, default rate, the proportion of non performing loans, regularly or at least quarterly to enable them to maintain high asset quality to enhance the financial performance. Oraka, Azubike O | Ebubechukwu, Jacinta O "Effect of Liquidity Risk on Performance of Deposit Money Banks in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-4 , June 2021, URL: https://www.ijtsrd.compapers/ijtsrd42388.pdf Paper URL: https://www.ijtsrd.commanagement/other/42388/effect-of-liquidity-risk-on-performance-of-deposit-money-banks-in-nigeria/oraka-azubike-o
EFFECTS OF MORTGAGE FINANCING ON THE FINANCIAL PERFORMANCE OF COMMERCIAL BANK...paperpublications3
Abstract: Mortgage financing over the years has been a preserve for mortgage financing companies but with time, commercial banks have started engaging in mortgage financing. An efficient housing finance system has significant importance both in meeting the housing needs of individuals and in reinforcing the development it is practiced by banks in Kitale and to figure out there short coming in mortgage financing do affect the performance of banks. The objectives of the study were to establish the effects of mortgage financing on Financial Performance of commercial banks in Kitale. The study had four specific objectives establish effects of repayment period, interest rates, income levels of borrowers and valuation cost on performance of mortgage financing in Trans Nzoia County of financial performance of commercial banks in Kitale. The study adopted descriptive research design which assists to examine the effects between mortgage financing and financial performance of commercial banks. The target population of the study was 16 Commercial Banks as they fulfil all characteristics and legally accepted by the Central Bank of Kenya. A census was applied as the method of systematically acquiring and recording information from the population. Qualitative and quantitative techniques were used to analyzing the data. After receiving questionnaires from the respondents the responses were edited, classified, coded and tabulated to analyze quantitative data using statistical package for social science (SPSS 21). Tables and charts were used for data presentation for easy understanding and analyzes.
Keywords: Repayment period, Interest rate, Mortgage valuation cost and financial performance.
Title: EFFECTS OF MORTGAGE FINANCING ON THE FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN TRANSNZOIA COUNTY
Author: Serem, Kipruto, Isaac, Prof. Namusonge, Gregory, Mr. Okwaro Fredrick
ISSN 2349-7807
International Journal of Recent Research in Commerce Economics and Management (IJRRCEM)
Paper Publications
This paper examines the efficiency dynamics and convergence of Islamic and conventional banks across 23 countries from 1999 to 2014. Using parametric and non-parametric methods, the authors find that on average, Islamic and conventional banks have similar steady state efficiency levels and rates of efficiency convergence. However, classification tree analysis reveals that steady state efficiencies and convergence rates can vary between bank types in some countries. The alignment of Islamic and conventional banking systems is positively related to factors like financial depth, transparency, and economic stability. The paper provides novel insights into differences and similarities between Islamic and conventional banking models across countries.
The aim of this paper is to analyze the liquidity levels of various banks in the UAE for the period 2005-2009. To understand the behavior of liquidity indicators especially during the financial crisis, the researcher will analyze the four liquidity indicators over the years 2005 to 2009. The findings highlight how the banks in question have been impacted by the 2007-2008 crisis. This can most obviously be seen in the notable decline of each of the banks liquidity level in 2009. The effect of loans to total assets, loans to customers’ deposit, and investment to total assets ratios for the five banks was most notable in 2009. Two liquidity ratios were analyzed in order to determine the banks’ ability to honor its debt obligations, these being loans to total assets and loans to customers respectively. The third ratio was the total equity to total assets to assess the liquidity level in the capital structure, while the fourth ratio was the investment to total assets to measure the managing of liquidity. While Bank liquidity was affected by the crisis, bank performance remained relatively stable, as measured by coefficient of variation, since these banks were able to yield more control over cash flows in comparison to revenues and costs.
This study examines the factors that determine the financing supply of Islamic banks in multiple countries. It uses panel data from Islamic banks in Pakistan and Malaysia over several years. The study finds that increases in total deposits and GDP positively impact financing, while increases in the market rate of return, money supply, and bank equity negatively impact financing. The results indicate Islamic banks do not always proportionally increase financing when deposits and equity rise, suggesting excess liquidity. Overall the model explains about 31% of the variation in Islamic bank financing.
How The Growth In Bond Market Affect The Performance Of Banks In Briics?inventionjournals
When it comes to raising capital, corporates have two major sources of external funds: Equity and Debt. Corporate debt consists of broadly two types – bank borrowings and bonds. A bond is a formal contract between a borrower and a lender whereby the borrower promises to repay borrowed money with coupons at fixed intervals and at maturity in which the participants are provided with the issuance and trading of debt securities. The main objective of this study is to understand how the growth in bond market affects the performance of the Bank in BRIICS countries. The variables like Bank’s capital to asset ratio, Domestic credit to private sector, NPA, Portfolio investment and Bond market size has been analysed and Panel regression has been used to find the results. The results showed that all the variables analysed have a positive impact on the bond market growth and a leading effect on the banks
International Journal of Business and Management Invention (IJBMI)inventionjournals
This document summarizes a study that examined the determinants of credit risk in the Tunisian banking sector from 2003-2011. The study found that:
1) Performance, audit opinion, and audit quality were significant determinants of credit risk levels in banks, with higher performance, unqualified audit opinions, and audits by large accounting firms associated with lower credit risk.
2) Information quality, as proxied by discretionary accruals, was not found to be related to credit risk levels.
3) The study tested these relationships using an ordinary least squares regression model with credit risk as the dependent variable and information quality, performance, size, listing status, audit opinion, and audit quality as independent variables
International Journal of Business and Management Invention (IJBMI)inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
International Journal of Business and Management Invention (IJBMI)inventionjournals
The document summarizes a study that examined the determinants of credit risk in the Tunisian banking sector from 2003-2011. The study found that performance, audit opinion, and audit quality were significant determinants of credit risk levels, with higher performance, unqualified audit opinions, and audits by big four firms associated with lower credit risk. However, information quality measured by discretionary accruals was not found to be related to credit risk. The study used regression analysis to test the relationship between credit risk and various independent variables like information quality, performance, size, listing status, audit opinion, and audit quality.
The relationship between net interest margin and return on assets of listed b...Alexander Decker
This study examined the relationship between net interest margin (NIM) and return on assets (ROA) of listed banks in Ghana from 2005-2011. It found a strong positive correlation between NIM and ROA, with NIM explaining 82.6% of the variation in ROA. Both NIM and ROA generally decreased over the period, though they increased between 2009-2010. The study also found a very strong positive relationship between net interest income and profit before tax, with net interest income explaining 99.8% of the variation in profit before tax. In conclusion, the ability of banks to generate net interest income was highly influential in determining their level of profitability.
Effect of Liquidity Risk on the Profitability of Mortgage Banks in Nigeriaijtsrd
The study was inspired by the liquidity risk that the Nigerian mortgage banking business faces in terms of profitability. As a result, the study investigates the impact of liquidity risk on the profitability of Nigerian mortgage banks. This research effort was carried out using secondary data and an ex post facto research design. The regression statistical technique in the Statistical Package for Social Sciences SPSS Version 22.0 was used to assess data derived from the financial statements of listed mortgage banks on the Nigerian Stock Exchange NSE . The results of the analysis demonstrate that Loan to Deposit has a substantial impact on mortgage banks net interest margins in Nigeria, and that Current Ratio has a significant impact on mortgage banks net interest margins in Nigeria. It was so recommended, among other things, that bank management adopt sound lending policies and maintain a sufficient balance between loans and deposits, because bank profit is largely dependent on deposits mobilized and liquidity created through loans given. Ekwueme, Chizoba M | Onakeke, Newman "Effect of Liquidity Risk on the Profitability of Mortgage Banks in Nigeria" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-5 , August 2021, URL: https://www.ijtsrd.com/papers/ijtsrd46349.pdf Paper URL: https://www.ijtsrd.com/management/accounting-and-finance/46349/effect-of-liquidity-risk-on-the-profitability-of-mortgage-banks-in-nigeria/ekwueme-chizoba-m
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Abnormalities of hormones and inflammatory cytokines in women affected with p...Alexander Decker
Women with polycystic ovary syndrome (PCOS) have elevated levels of hormones like luteinizing hormone and testosterone, as well as higher levels of insulin and insulin resistance compared to healthy women. They also have increased levels of inflammatory markers like C-reactive protein, interleukin-6, and leptin. This study found these abnormalities in the hormones and inflammatory cytokines of women with PCOS ages 23-40, indicating that hormone imbalances associated with insulin resistance and elevated inflammatory markers may worsen infertility in women with PCOS.
A usability evaluation framework for b2 c e commerce websitesAlexander Decker
This document presents a framework for evaluating the usability of B2C e-commerce websites. It involves user testing methods like usability testing and interviews to identify usability problems in areas like navigation, design, purchasing processes, and customer service. The framework specifies goals for the evaluation, determines which website aspects to evaluate, and identifies target users. It then describes collecting data through user testing and analyzing the results to identify usability problems and suggest improvements.
A universal model for managing the marketing executives in nigerian banksAlexander Decker
This document discusses a study that aimed to synthesize motivation theories into a universal model for managing marketing executives in Nigerian banks. The study was guided by Maslow and McGregor's theories. A sample of 303 marketing executives was used. The results showed that managers will be most effective at motivating marketing executives if they consider individual needs and create challenging but attainable goals. The emerged model suggests managers should provide job satisfaction by tailoring assignments to abilities and monitoring performance with feedback. This addresses confusion faced by Nigerian bank managers in determining effective motivation strategies.
A unique common fixed point theorems in generalized dAlexander Decker
This document presents definitions and properties related to generalized D*-metric spaces and establishes some common fixed point theorems for contractive type mappings in these spaces. It begins by introducing D*-metric spaces and generalized D*-metric spaces, defines concepts like convergence and Cauchy sequences. It presents lemmas showing the uniqueness of limits in these spaces and the equivalence of different definitions of convergence. The goal of the paper is then stated as obtaining a unique common fixed point theorem for generalized D*-metric spaces.
A trends of salmonella and antibiotic resistanceAlexander Decker
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We recently hosted the much-anticipated Community Skill Builders Workshop during our June online meeting. This event was a culmination of six months of listening to your feedback and crafting solutions to better support your PMI journey. Here’s a look back at what happened and the exciting developments that emerged from our collaborative efforts.
A Gathering of Minds
We were thrilled to see a diverse group of attendees, including local certified PMI trainers and both new and experienced members eager to contribute their perspectives. The workshop was structured into three dynamic discussion sessions, each led by our dedicated membership advocates.
Key Takeaways and Future Directions
The insights and feedback gathered from these discussions were invaluable. Here are some of the key takeaways and the steps we are taking to address them:
• Enhanced Resource Accessibility: We are working on a new, user-friendly resource page that will make it easier for members to access training materials and real-world application guides.
• Structured Mentorship Program: Plans are underway to launch a mentorship program that will connect members with experienced professionals for guidance and support.
• Increased Networking Opportunities: Expect to see more frequent and varied networking events, both virtual and in-person, to help you build connections and foster a sense of community.
Moving Forward
We are committed to turning your feedback into actionable solutions that enhance your PMI journey. This workshop was just the beginning. By actively participating and sharing your experiences, you have helped shape the future of our Chapter’s offerings.
Thank you to everyone who attended and contributed to the success of the Community Skill Builders Workshop. Your engagement and enthusiasm are what make our Chapter strong and vibrant. Stay tuned for updates on the new initiatives and opportunities to get involved. Together, we are building a community that supports and empowers each other on our PMI journeys.
Stay connected, stay engaged, and let’s continue to grow together!
About PMI Silver Spring Chapter
We are a branch of the Project Management Institute. We offer a platform for project management professionals in Silver Spring, MD, and the DC/Baltimore metro area. Monthly meetings facilitate networking, knowledge sharing, and professional development. For more, visit pmissc.org.
Joyce M Sullivan, Founder & CEO of SocMediaFin, Inc. shares her "Five Questions - The Story of You", "Reflections - What Matters to You?" and "The Three Circle Exercise" to guide those evaluating what their next move may be in their careers.
Learnings from Successful Jobs SearchersBruce Bennett
Are you interested to know what actions help in a job search? This webinar is the summary of several individuals who discussed their job search journey for others to follow. You will learn there are common actions that helped them succeed in their quest for gainful employment.
In the intricate tapestry of life, connections serve as the vibrant threads that weave together opportunities, experiences, and growth. Whether in personal or professional spheres, the ability to forge meaningful connections opens doors to a multitude of possibilities, propelling individuals toward success and fulfillment.
Eirini is an HR professional with strong passion for technology and semiconductors industry in particular. She started her career as a software recruiter in 2012, and developed an interest for business development, talent enablement and innovation which later got her setting up the concept of Software Community Management in ASML, and to Developer Relations today. She holds a bachelor degree in Lifelong Learning and an MBA specialised in Strategic Human Resources Management. She is a world citizen, having grown up in Greece, she studied and kickstarted her career in The Netherlands and can currently be found in Santa Clara, CA.
Determinants of commercial banks lending evidence from ethiopian commercial banks
1. European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.6, No.20, 2014
109
Determinants of Commercial Banks Lending: Evidence from
Ethiopian Commercial Banks
Mitku Malede
Department of Banking and Finance,Faculty of business and economics
Lecturer in Jigjiga University, jigjiga, Ethiopia
Email: maledemitku@gmail.com
Abstract
The study was mainly aimed to confirm the main determinants of commercial bank lending in Ethiopia by using
panel data of eight commercial banks in the period from 2005 to 2011. It tested the relationship between
commercial bank lending and its some determinants (bank size, credit risk, gross domestic product, investment,
deposit, interest rate, liquidity ratio and cash required reserve). Seven years financial data of eight purposively
chosen commercial banks were used for analysis purpose. Ordinary least square (OLS) was applied to determine
the impact of those predictor variables on commercial bank lending. The result suggests that, there is significant
relationship between commercial bank lending and its size, credit risk, gross domestic product and liquidity ratio.
But deposit, investment, cash required reserve and interest rate does not affect Ethiopian commercial bank
lending for the study period. The study suggests that commercial bank have to give more emphasis to credit risk
and liquidity ratio because it weakens banks loan disbursement and leads a bank to be insolvent.
Keywords: Commercial Banking, credit risk, deposit. interest rate, lending,
1. INTRODUCTION
Lending is the main function of commercial banks- evidenced by the volume of loans that constitute banks’
assets and the annual considerable raise of loan which is granted to borrowers both to private and public sectors
of the economy. Lending is the principal business for most commercial banks. Consequently, loan portfolio is
the largest asset and source of revenue for banks (Comptroller, 1998). In view of the significant contribution of
loans to the financial health of banks through interest income earnings, these assets are considered the most
valuable assets of banks. Bank loan is typically the largest asset and the predominant source of income for banks.
Since 1963 commercial banks in Ethiopia perform several banking business like attracting all types of deposit
and granting loan and advance to borrowers for the sake of increasing their investment capacity. As a result
commercial bank plays a great role for the growth of the economy by maintaining three main operating guiding
principles, which are profitability, liquidity and solvency. Hence, cash required reserve become an alternative
way to maintain banks liquidity. Consequently, national bank of Ethiopia set this requirement. Nevertheless,
these policies or requirements are at the center of an intense national debate. There is a world-wide contention on
the issue- some researchers believe such requirements promote disintermediation of commercial bank credit
while others stand at the opposite. Christian & Pascal (2012), Cargill and Mayer (2006), and Montoro and
Moreno (2011) contended that, an increase in reserve requirement case to decrease bank credit. On the other
hand Friedman and Schwartz (1963) claim that, a raise in Commercial Bank cash required reserves sources to
increase its credit creation ability. Olusanya, s. et al, (2012) also reveal that, required reserve has positive impact
on commercial bank loans and advances. I.e. banks credit raise when cash required reserve increase. Again,
Meltzer (2003) reveals that a raise in reserve requirements would have little or no impact on credit supply.
Chandler (1971) also supports by uttering that an increment in reserve requirements does not encourage banks to
hold back their lending or sell securities or cause interest rates to rise. Further, Wilcox (2012) sustains that
changes in reserve requirements had only small and statistically insignificant impacts on bank loans and
investments. These various approaches have been used to examine the effects of cash required reserve on a broad
array of banks credit. However, the evidence is not uniform and consistent in indicating that whether cash
reserve affects commercial banks’ credits or not a relative handful of studies (like; Chang, 1996, 1999; Wilcox,
Olusanya, et al, 2012, Chandler, 1971, Christian & Pascal, 2012, Friedman & Schwartz, 1963) had specifically
examined whether the amount of cash reserve requirement effect is positive, negative or no effect on bank loans
and advance. Generally, this study aimed to determine the effect of common determinants of commercial banks
lending; and thereby, to provide empirical evidence about the effects of cash required reserve on commercial
bank credit. As far as the researcher is concerned, there is no a researcher who tried to deal with factors that
determine commercial banks lending in Ethiopia.
2 LITERATURE REVIEW
As literature suggests determinants of commercial bank lending behavior may be classified into internal and
external factors: named as liquidity ratio, interest rate, gross domestic product, cash reserve requirement, deposit,
investment portfolio and exchange rate as of (olokyo, 2011). Olusanya, et al,(2012) also examines the
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determinants of commercial bank lending behavior in Nigeria case and He found that, foreign exchange rate,
investment portfolio, deposits and liquidity ration have positive impacts on commercial bank lending volumes,
while the coefficients of lending interest rate and minimum cash reserve ratio were negative. Lastly, Chernykh
and Theodossiou (2011) reveal that, the size of the bank which is measured by assets and the bank capitalization
are the only determinants of businesses and long-term loans. Ewert et al. (2000) also examine the determinants
of bank lending performance in Germany. And it gives a controversial finding which states riskier credit
contracts are assigned lower interest rate premiums by banks. Chodechai (2004) in his investigation titled as,
factors that affect interest rates, degree of lending volume and collateral setting in loan decision of banks; state
that, banks have to be careful with their loan pricing decisions. Because if banks charge too low loan rates the
revenue from the interest income will not be enough to cover the cost of deposits, general expenses and the loss
of revenue from some borrower. Hence, charging too high loan rates may also create an adverse selection
situation and moral hazard problems for the borrowers. Borio (1995) investigated the structure of credit to
nongovernment sector and channel of monetary policy in fourteen industrialized countries and reveals that, the
structure of credit was largely determined by interest rate. Irina B. (2003) asses bank liquidity and exchange rate
in European perspective; and claim that, higher lending rates do not encourage banks to lend more. Abd Karim et
al. (2011) investigated the impact of interest rate on bank lending in Malaysia context: and contented that,
interest rate affect bank lending negatively, while controlling for other macroeconomic variables such as GDP
and Inflation. Abd Karim, Mohd & Adziz (2007) also reveal that, monetary policy tightening instruments like
interest rate in Malaysia reduces bank lending to all the sectors. But it is sever in some sectors such as
manufacturing and suggest that, interest rates are positively associated with Islamic financing and negatively
associated with conventional loan. Usman (1999) by investigating a major regulation affecting commercial
banks lending in Nigeria; reveal that, while central bank reduces the rate what the bank charges from borrower,
banks become reluctant to provide loan to firms. Bank charge high interest premium for the borrowers who have
higher credit default risk to repay the loan (Ewert et al, 2000).
According to Bashir, (2003) large-sized banks have the advantage of providing a larger menu of financial
services to their customers and there by mobilize more funds. Cole et al. (2004) also suggest that, smaller banks
adopt small business loan underwriting practices that are riskier than those of larger banks. More over Salas and
Saurina (2002) assert that, a big balance sheet allows managers to invest in different geographical or business
segments to deal with asymmetric shocks. Rajan and Dhal (2003) indicates that, banks size has significance
effect on occurrence of nonperforming loan.
King (1986) by investigating monetary transmission through bank loans and establishes that, change in GDP
cause to change volume of loan. Baum, Caglayan and Ozkan (2005) found that, an increase in uncertainty of
industrial production leads to somewhere a reduction in the dispersion of bank loans-to-asset ratio for total loans,
real estate loans and household loans. Talavera, Tsapin and Zholud (2006) Found that, banks make out more
loans during periods of boom and curtail lending when the economy is in recession. De Young, Gron, and
Winton (2005) again found, during an economic expansion demand for lending is high and business profitability
is good, resulting in more profitable loans, more bank capital and an expanding credit environment in which
banks lend more at lower rates as they compete for business.
Mansor H. I. (2006) note that, gross domestic product affect bank loans positively since an increase in GDP
causes a raises in both supply and demand for loans. An increase in GDP means more funds are available for
banks to make loans since deposits are more likely to increase. Pruteanu-Podpiera (2007) investigated the impact
of monetary policy, gross domestic product growth rate and inflation on growth rate of total loans in Czech
banks from 1996 to 2001. The result suggests a strong positive effect of GDP growth on the growth rate of loans,
but the impact of interest rates was negative. As Rehana and Rizwana (1998) found, the level of' economic
activity is expected to make a positive impact on bank advances as it does not increases the demand for advances
only but the supply of loan able funds as well.
Abdul Karim, Azman-Saini & Abdul Karim (2011) investigated bank lending channel of monetary policy in
Malaysia case from 1913 to 2008. And show that, bank liquidity determines banks’ loan supply. According to
Goldfield and Chandler (1980) commercial banks must pay more attention to its liquidity because high turnover
obtained from their debt liabilities. Aisen and Franken, (2010) examine bank credit during 2008 financial cries:
with a cross country comparison. The study argued that, banks which faced ultimate liquidity stress lost their
ability to lend more.
Credit risk is critical since the default of a small number of important customers can generate large losses which
can lead to insolvency (Bessis, 2002). Variation in credit risk may reflect a change in the health of a bank’s loan
portfolio (Cooper et al., 2003), which in turn may influence the performance of the institution. Lending is the
primary functions of banks, and precisely assessing a borrower‘s credit worthiness has always been the only
method of lending successfully (Andrew Fight, 2004). More financial institutions are exposed to high risk loans
and the higher accumulation of unpaid loans. Implying that, these loan losses have produced lower returns to
many commercial banks (Miller and Noulas, 1997). Chodechai (2004) further stressed that, banks’ lending
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decisions influenced by the past relationship with the borrowers, which enables to have more accurate
understanding of the borrower’s business and financial situation.
According to Mc Carthy et al. (2010) Customers’ deposit is the primary source of bank loan. And thereby,
deposits directly have a positive effect on lending. Moreover, Sebastian (2009) strongly reveal that, demand
deposit liabilities had the most significant and positive influence on banks’ credit allocations in Nigeria case.
Generally, lending is the main means of income and the most profitable asset for the bank which is determined
by bank size, credit risk, liquidity, cash required reserve, deposit, Investment, interest rate and gross domestic
product. Literature reveals mixed results concerning to the relationship between commercial bank lending and
these expected factors. Despite its mixed results most of the finding reveals a positive association between bank
size, , credit risk, deposit, gross domestic product and bank lending while investment and interest rate negatively
associate it. However, the effect of cash required reserve on commercial bank lending falls under a serious
argumentative issue. Some finding state that, cash required reserve reduce commercial bank credit; while others
claim that, it encourage bank credit and the rest shows, no relation or its effect is insignificant. This lack of
consensus among researchers requires further investigation; accordingly the researcher needs to look this issue in
Ethiopia context.
2.5 CONCEPTUAL FRAMEWORK
As empirical evidences suggest commercial bank lending is affected by internal and external factors. Hence, this
study used both internal and external determinants of bank lending jointly which includes; bank size, credit risk,
deposit, liquidity, investment, cash required reserve, lending interest rate and gross domestic product.
Figure 1:
Source – Owen
GAP IN LITERATURE (NEED OF THE STUDY)
Olusanya et al. (2012) and Olokoyo F. (2011) had investigated the determinants of commercial banks lending to
show the effect of internal and external variables on commercial banks’ lending in Nigeria case and also Yannis
and Aristotelis(2013) in Greece context. However, the issue investigated, it fails to look the effect of bank size
and credit risk on commercial banks lending. Hence, this short coming of the study calls for further study.
Accordingly, the researcher comes in a position to investigate this notion in Ethiopian case by using seven years
panel data from eight commercial banks from 2005 up to 2011.
STATEMENT OF THE PROBLEM
Lending is undeniably the heart of banking business (Adedoyin and sobodun, 1996). Granting loans and advance
for the borrower is the main activity that generates income for banks highly. Therefore, loan portfolio is typically
the largest asset and source of revenue for banks. However, loans and advance is the most profitable and liquid
asset for the bank to maintain its maximum liquidity obligation to their depositors or lenders; banks do not invest
its entire fund in a profitable asset (Nwankwo, 2000).
Bank accept customer deposits and use that fund to grant loans to borrowers or invest in other assets that will
yield a return higher than the amount bank pays the depositor (McCarthy et al., 2010). It is understandable that,
the main source of lending is deposit or money accepted from the depositor but the amount that would have to be
lent is a certain percentage of the total deposited amount and the remaining is kept as a reserve for the purpose of
maintaining its liquidity.
In Ethiopia, under Article 2.1(a) of the directive, National Bank of Ethiopia requires any bank operating in
Ethiopia to maintain in its reserve account of 5% ( five percent) of all birr and foreign currency deposit
Liabilities held in the form of demand or current, saving and time deposit. Although bank’s loan portfolio is the
main means of income for the bank, commercial banks in our country do not invest their entire resources in this
profitable asset rather they keep a portion of its resources idle to meet cash required reserve. A consolidated
balance sheet of commercial banks shows that, all commercial banks maintain; 750, 1030, 427, 855, 1411, 1995,
2799 billion birr from 2005 to 2011 as a legal reserve which is too large relatively to its asset. Nevertheless, this
requirement is aimed at maintaining bank liquidity it open question whether a reserve requirement may achieve a
contraction in domestic credit or not.
Source -self
• Bank size
• Credit risk
• Deposit
• Liquidity
• Investment in
• Cash
required
reserve
• gross
domestic
product
Internal factors
Bank lending
(Loans and
advances)
External
factors
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As far as the researcher is concerned, there is no a researcher who tried to deal with factors that determine
commercial banks lending behavior in Ethiopia.
PURPOSE STATEMENT
The main objective of this study was to investigate the main determinants of Ethiopian commercial banks
lending.
More specifically, the study was aimed at addressing the following specific objectives;
To determine the effect of internal factors (bank size, credit risk, deposit, liquidity ratio and investment in
security) on commercial bank lending.
To determine the effect of external factors (Gdp, cash required reserve and interest rate) on commercial
banks lending.
HYPOTHESIS OF THE STUDY
To achieve study’s objective the researcher developed the following research hypotheses i.e. the main arguments
of the study were fashioned in to two alternative hypotheses.
H1: There is significant relationship between commercial banks’ lending and internal factors- bank size,
credit risk, deposit, liquidity ratio and investment in security.
H2: There is significant relationship between commercial banks’ lending and external factors- Gdp,
cash required reserve and interest rate.
3. RESEARCH METHODOLOGY
This section presents the methodologies that were employed to achieve studies objective. To achieve study
objective as well as to test the hypothesis by large, the study employed quantitative research design. For the
purpose of this study quantitative approach was employed to establish how independent variable affects
dependent variable. Target population was all banks that engage in commercial activities and registered by
National Bank of Ethiopia to act. In our country 19 Commercial Banks are operating. Out of these commercial
banks, eight of them were taken for the purpose of this investigation purposively by taking in to account the
availability of data, cost, time and due to the importance of experience in the industry to understand factors that
would affect banks’ credit. Secondary data was sourced from financial statements of sampled banks which were
submitted to national bank. Accordingly, panels of seven years financial data of sampled banks were obtained
from National Bank of Ethiopia which covers from 2005-2011. The cut off year was by considering that it offers
recent time series observations. Accordingly, the study would have 56 observations i.e. seven observations for
each individual bank. Lastly collected data was analyzed and interpreted by using multiple regression analysis
with a package of version 11 stata software.
OPERATIONALIZATION OF STUDY VARIABLES
This section presents the measurements that were employed to operationalize the study variables. For this study,
lending was used as a dependent variable which is determined by many factors. And those factors were chosen
by taking in to account the availability of data and its influence on bank lending as mentioned in literature.
Table 3.1 Definition of Variables (proxies), symbols and Expected Signs.
Symbol variables Operational Definition /Measurements/ Expected sign
Ld Lending Natural logarithm of Net loans and advances
Bsiz Bank size Natural logarithm of total asset Positive
Gdp Gross domestic
Product
Current year Real GDP minus Previous Year Real GDP /
Previous year Real GDP.
positive
CR Credit risk A ratio of nonperforming loan / Total Asset Positive
Lr Liquidity ratio Liquid asset / Total Deposit Positive/Negative
Vd Volume of deposit Deposit/ Capital. positive
Rr Cash reserve Cash required reserves / Total Asset Positive/Negative
Ip Investment
portfolio
A bank’s total investment in security / Total Asset. Negative
Ir Interest rate Annual average bank lending rate. Positive/Negative
MODEL SPECIFICATION
To test the hypothesis the study model has been developed as follows . Ordinary least square model was used to
test hypothesis.
Ld = f (Bsiz, Cr, Gdp, Ip, Ir, Lr, Rr, Vd)…………………………………………………….(1)
Where Z restrains other variables not explicitly included in the model.
Thus, the regression equation for this study becomes;
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Ldit = α0 + β1Bsizit + β2crit + β3Gdpit + β4Ipit + β5Irit + β6Lrit + β7Rrit + β8Vdit µ……………………….. (2)
Where:
Ld it: Loans and Advances of bank i at time t. Bsiz it: size of bank i at time t
cr it : credit risk of bank i at time t.
Gdp: gross domestic product. Ip i t: Investment Portfolio of bank
i at time t.
Ir it: Interest Rate (Lending Rate) of bank i at time t. rr it: Cash required reserve of bank i
at time t.
Lr it: Liquidity ratio of bank i at time t. Vd it: Deposits of bank i at time t.
µ: error term or residual in the model. α: intercept of the regression line.
β1, β2, β3 β4, β5, β6, β7: are parameters or coefficients of the independent variables estimated.
4. RESULTS AND DISCUSION
As displayed in regression result table below, R-square of the model was about 90.02%. Mean while, about
90.02 percent variation in commercial banks lending explained by factors (predictor variables) included in the
model for the test period. P-value of F-statistics (Prob>F= 0.00000) is significant at 1 percent level of
significance. Hence, it reveals that a model used for this study was good enough fitted.
As the empirical finding suggest there are positive statistically significant relationship between commercial bank
lending and its size which is consistent to Cole et al. (2004) and Andreas & Gabrielle (2009) finding. The study
also finds statistically significant positive relationship between commercial bank lending and credit risk which is
similar with Chimerine (1998). Gross domestic product has positive statistically significant relationship with
commercial bank lending for the test period which agrees with Mansor (2006) finding. It is evident from analysis
that, liquid asset to deposit ratio had positive and statistically significant relationship with commercial bank
lending which is significant at 1% level of significance. This result is consistent with Abdul Karim, Azman-Saini
& Abdul Karim (2011).
The analysis suggests that, cash required reserve have positive statistically insignificant relationship with
commercial bank lending. For that the null hypothesis, which states there is no relationship between cash
required reserve and commercial bank lending was accepted and the alternative hypothesis was rejected.
However, it is insignificant. Hence, Ethiopian commercial bank lending behavior does not influenced by cash
required reserve from 2005 to 2011. This finding agrees with; Wilcox, James A. (1984), Meltzer (2003) and
Chandler (1971); and refutes Christian & Pascal (2012) findings that show a significant relationship between
reserve requirements and commercial bank credit.
Table 4.3 Linear regression result
As the empirical finding show, investment portfolio has been found as positive statistically insignificant
relationship with commercial bank lending. This implies that, when a bank engages in investing its resources in
different financial instruments that bears interest for the bank, its ability of lending also increase. However it is
insignificant. In Ethiopia investment doesn't influence commercial bank lending. The reason might be, due to an
absence of well developed financial market where commercial papers, stocks, treasury certificates and bankers’
acceptances were traded.
Lending interest rate is another variable that has been found as positive statistically insignificant relationship
with commercial bank lending. Thus, the researcher fails to reject the null hypothesis that states there is no
relationship between lending interest rate and commercial bank lending. Hence, Ethiopian commercial banks
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lending do not affected by lending interest rate. It might be due to a change in borrowers demand for loan in
response to interest rate variation, which is not considered in this study. The finding is similar with Usman
(1999).
The other hypothesis developed for this investigation was, relationship between liquid assets to deposit ratio with
commercial bank lending. It is evident from analysis that, liquid asset to deposit ratio had positive and
statistically significant relationship with commercial bank lending which is significant at 1% level of
significance. As the finding shows, when a ratio of liquid asset to deposit becomes large (bank maintains large
assets easily convert able to cash at a low cost) a bank’s loans and advances also become high. As the regression
coefficients shows, every 1% increase in liquidity ratio, on average, leads commercial banks lending to
increases by 0.72372 %. This result is consistent with Abdul Karim, Azman-Saini & Abdul Karim (2011).
As regression coefficient reveals, deposit have positive statistically insignificant relationship with commercial
bank lending. It concurs with Mc Carthy et al. (2010) finding which demonstrates deposit positively affects bank
credit. It might be due to most of the deposits what a bank accept are in demand form which is repayable to
depositors on demand. As a result banks may maintain large amount of customer deposits as a reserve to meet
customers demand instead of lending. Or it may that banks does not issue immediate loan from currently
deposited amount.
The analysis suggests the determinants of commercial bank lending are; bank size, credit risk, gross domestic
product and liquidity ratio.
FINDINGS
Bank size had positive and statistically significant influences on commercial bank lending. Credit risk is
statistically significant determinant of commercial bank lending.Gross domestic product affects commercial
bank lending positively. Investment had positive statistically insignificant relationship with Ethiopian
commercial bank lending. Lending interest rate has positive statistically insignificant relationship with
commercial bank lending. Liquidity ratio had positive and statistically significant relation with commercial bank
lending. Cash required reserve affects commercial bank lending positively however it is insignificant. Deposit
has positive and statistically insignificant relationship with commercial bank lending.
RECOMMENDATION
Commercial bank is the leading financial institution in granting of loans advances to individuals, business or
firms. Again this service is the main means of revenue for the bank. Accordingly, to improve commercial bank
lending it is better to identify main determinants of its lending. Thus depending on studies major finding, I like to
suggest the following points.
Ethiopian commercial banks should have to strive to strength its asset size, since its asset size determines its
ability in new loan disbursement. I.e. large asset size allows banks to create new loan and to diversify loan
investment which also makes possible to reduce credit risk.
Ethiopian commercial bank lending was mainly affected by credit risk. Therefore, Commercial bank should have
to establish credit policies and standards that conform to regulatory requirements and the bank’s overall
objectives.
Loan portfolio is the most profitable asset. So, a concern body should have to review the adequacy of credit
training across the bank.
CONCLUSIONS
The study examined the relationship between Ethiopian commercial banks’ lending with bank size, credit risk,
gross domestic product, investment, liquidity ratio, interest rate, cash required reserve and deposit from 2005 up
to 2011 using lending (LD) as dependent variables. These predictor variables were included in the model to
estimate its impact on commercial banks’ lending. Parameters were estimated using the Ordinary Least Square
(OLS) method and study findings reveal that; bank size, Credit risk, gross domestic product and liquidity ratio
had positive statistically significant influences on commercial bank lending. Whereas Investment, interest rate,
liquidity ratio, cash required reserve and deposit does not affect commercial bank lending for the test period. A
positive regression coefficient of bank size, credit risk, gross domestic product and liquidity ratio implies that,
they are tend to be move in the same direction with banks’ lending. Hence, the regression coefficients show that,
every 1% increase in bank size, credit risk, gross domestic product and liquidity ratios cause to change
commercial bank lending by 0.012448, 0.2388, 0.0010799 and 0.0072372 percent respectively.
5.3 SUGGESTION FOR FURTHER RESEARCH
This investigation fails to consider factors that may affect individuals demand for loan and it focus only the
determinants of commercial banks lending on supply side. So if someone investigates this issue by emphasizing
both supply and demand side determinants of loan by incorporating excluded banks the finding may be relatively
fruit full.
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Appendix A: Tests for Multiple Regression and Panel Data:
1. Multicollinearity Test Using Variance Inflation Factor:
VIF greater than 10 and 1/VIF is less than 0.10 indicates the presence of multicollinearity. The result shows that,
no multicollinearity problem since VIF less than 10 and 1/VIF is greater than 0.1
2. Normality Test: Shapiro wilk test for normal distribution of residuals.
H0: Variables are normally distributed
The null hypothesis states that the distribution of the residuals is normal; here we fail to reject null hypothesis, as
long as a Shapiro-wilk test is insignificance. Then we conclude that residuals are normally distributed.
3. Breusch-Pagan / Cook-Weisberg test for Heteroskedasticity
Since the result is insignificant rejecting alternative hypothesis becomes appropriate; that indicates the presence
of heteroskedasticity, and accept null hypothesis which states there is constant variance (homoscedasticity).
4. Ramsey Test for Model Specification
Ramsey RESET test using powers of the fitted values of lending.
Regression specification error test for omitted variables (ovtest)
Ramsey reset test is significant at 1% level of significance; accordingly, we conclude that there are factors not
included in the model.
Mean VIF 4.12
vd 1.56 0.642137
gdp 2.00 0.500474
ir 2.03 0.492020
rr 2.19 0.457064
lr 2.26 0.443441
ip 6.90 0.144883
bsiz 7.30 0.136911
cr 8.69 0.115077
Variable VIF 1/VIF
residual 56 0.98099 0.978 -0.048 0.51927
Variable Obs W V z Prob>z
Shapiro-Wilk W test for normal data
Prob > chi2 = 0.3016
chi2(1) = 1.07
Variables: fitted values of ld
Ho: Constant variance
Breusch-Pagan / Cook-Weisberg test for heteroskedasticity
Prob > F = 0.0000
F(3, 44) = 9.79
Ho: model has no omitted variables
Ramsey RESET test using powers of the fitted values of ld
9. European Journal of Business and Management www.iiste.org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.6, No.20, 2014
117
5. Hausman Test for Random Vs Fixed Effect
Hausman test was statistically insignificant. So, null hypothesis which states random effect is appropriate; was
accepted.
6. Breusch and Pagan Lagrangian Multiplier Test for Random Effect
Here we failed to reject the null and conclude that random effects are not appropriate. There is no evidence of
significant differences across banks (no panel effects). Therefore, simple OLS regression was chosen.
7.Autocorrelation test
Since Breusch Godfrey result is insignificant we fail to reject a null hypothesis, which states no serial correlation.
Therefore, we conclude that there is no serial correlation in the model.
Appendix B: List of Banks Sampled*
Awash International Bank
Bank of Abyssinia
Commercial Bank of Ethiopia
Construction and Business Bank
Dashen Bank
Nib International Bank
United Bank
Wegagen Bank
* ordered alphabetically
Prob>chi2 = 0.6698
= 5.80
chi2(8) = (b-B)'[(V_b-V_B)^(-1)](b-B)
Test: Ho: difference in coefficients not systematic
.
Prob > chi2 = 0.3844
chi2(1) = 0.76
Test: Var(u) = 0
u 0 0
e 1.22e-06 .001106
ld .0000103 .0032111
Var sd = sqrt(Var)
Estimated results:
ld[bank,t] = Xb + u[bank] + e[bank,t]
Breusch and Pagan Lagrangian multiplier test for random effects
H0: no serial correlation
1 0.205 1 0.6511
lags(p) chi2 df Prob > chi2
Breusch-Godfrey LM test for autocorrelation
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