Impact Of Credit Risk Management On Banks Profitability A Case Study Of Selected Private Commercial Banks In Ethiopia

Abstract

Credit risk is one of the most significant risks that banks face, considering that granting credit is one of the main sources of income in commercial banks. Therefore, the management of the risk related to that credit affects the profitability of the banks. The aims of the research were to investigate the impact of credit risk management on banks profitability in selected private commercial banks in Ethiopia. Explanatory research design was used in this research and Quantitative data type used through secondary source. This data obtained from selected private commercial banks and from National Bank of Ethiopia for 10 years. In order select sample under the study the researcher used purposive sampling method. The descriptive statistics were used to analyze the data. To test the relationships between the credit risk management variable of selected private commercial banks in Ethiopia and banks profitability, multiple linear regressions model was run, and thus Ordinary Least Square (OLS) conducted using econometric software package. The types of the data for this study were panal data including the 10 years of data in the regression analysis. In this research dependent variable is profitability which was measured by ROA where as independent variables are; Loan loss provision, loans and advances, Capital adequacy ,Liquidity ratio, number of branches, GDP ,Inflation, and non performing loan. The study found that LLP, and CAR has significant negative impact on the profitability of private commercial banks in Ethiopia. LR has positive significant impact on profitability of private commercial banks in Ethiopia. LA, NPL, GDP, INFL, and NB have no statically significant impact on the profitability of selected private commercial banks in Ethiopia. The underline results indicate that credit risk management has significant impact on profitability of selected private commercial banks in Ethiopia. Key words; Credit risk Management, Profitability, Private Commercial Bank