An empirical Trend analysis of Bank Lending and Nonperforming Loans in Ethiopian Banking Sector

Abstract

Banking  sector play a key role toward the development of the economy. The extension of credit is one of the core functions of banking institutions. If banks are not capable in their lending activities, they may not contribute to economic growth. The study examined the trend and impact of NPLs on bank lending from (2005-2017). Purely, secondary source of data on convenience sampling were collected from selected  Bank of Ethiopia. Hence,  the  trend analysis, descriptive statistics, correlation and random effect regression were employed for analysis. Based on the finding, there is a mixed trend or irregular fluctuations between bank lending and non performing loans among Ethiopia banks. While the random effect regression, result indicates that, NPLs, Bank size, liquidity and investment portfolio shows a statistically significant relationship to bank lending. Except bank size the rest variables are negatively related to bank lending. Therefore, based on the finding, the paper suggests that the prevention of problem of bad loans accompanied by other resolution measures might help to sort out the nonperforming loan mess in Ethiopia.

 Keywords: Nonperforming loans, Bank lending,   Bank size,    liquidity, investment portfolio