THE IMPACT OF CREDIT RISK MANAGEMENT ON THE PERFORMANCE OF SELECTED COMMERCIAL BANKS IN ETHIOPIA

Abstract

Since granting credit is one of the main sources of income in commercial banks, the management of the risk related to that credit affects the profitability of the banks. This study tries to find out how the credit risk management affects the profitability in the seven sample selected commercial banks using a balanced panel data from 2009-2013 and 35 observations have been used for the analysis. The main purpose of the study is to describe the impact level of credit risk management on profitability in the seven commercial banks in Ethiopia. The study only uses the quantitative approach and focuses on the description of the outputs from SPSS, used regression model to do the empirical analysis. In the model the researcher defined ROE as profitability indicator while Loan loss provision, liquidity, operating inefficiency, loan growth and capital adequacy ratio as credit risk management indicators. The regression results revealed that loan loss provision, operating inefficiency & loan growth have positive and statistically significant impact on banks profitability (Return on Equity). Finally, the results indicate that liquidity & capital adequacy have a negative but statistically significant relationship with banks Return on Equity.