Bank- Specific Determinants of Credit Risk: Empirical Evidence from Ethiopian Banks

Abstract

While credit risk is one of the main risks of banks and affects the development of the financial system, little study is done to examine its determinants. This study examined the bank- specific determinants of credit risk in Ethiopian commercial banks. The quantitative research approach was adopted for the study. A balanced panel data of 10 commercial banks both state-owned and private owned for the period 2007 through 2011 has been analyzed using random effects GLS regression. The regression results revealed that credit growth and bank size have negative and statistically significant impact on credit risk. Whereas, operating inefficiency and ownership have positive and statistically significant impact on credit risk. Finally, the results indicate that profitability, capital adequacy and bank liquidity have negative but statistically insignificant relationship with credit risk.

Key words: Banks, credit risk, Ethiopia