| Abstract: | The objective of the study is to investigate the factor affecting loan and advance of private
commercial banks in Ethiopia. Panel data was collected from audited annual financial report of
sampled banks, publications of National Bank of Ethiopia (NBE) and for the macro-economic
factors from Ministry of Finance and Economic Cooperation (MoFEC) and used to analyses the
bank-specific Factors as well as the macroeconomic Factors. Quantitative research approach
and explanatory design were adopted in carrying out this research. Secondary data were
collected from NBE for the selected six private commercial banks out of eighteen banks using
convenient sampling technique from 2000-2015. The study employed panel data to analyze the
factor affecting loan and advance on the credit decision of private commercial banks. Data were
analyzed using descriptive statistics, correlation and regression analysis for total loan and
advance. Before performing OLS regression the researcher uses model specification test to
select the appropriate model for regression analysis. The study used the fixed effect model since
the sample for this study was not selected randomly. Furthermore, the models were tested for the
classical linear regression model assumptions and the results showed that all the tests are
satisfactory in regressions. The results of panel data regression analysis showed that NBE Bill
Purchase (BILL),Gross domestic Product (GDP), Inflation (INF), Market Share in terms of total
asset (MS) has a positive and significant influence in determining credit facilities granted by the
private commercial banks in Ethiopia. The findings also showed a significant and negative
relationship between Deposit Growth (DG), loan to Total Assets (NPL), Liquidity (LIQ), Capital
Adequacy (CAR), Lending Interest rate (LIR) has negative and insignificant influence, but
Profitability (ROA) has positive and insignificant influence in determining credit facilities
granted by the private commercial banks in Ethiopia. Ethiopian commercial banks better give an
emphasis and employ various strategies so as to attract and seize deposits and shall focus on
term deposit that have special consideration to keep the deposit for specified time to decrease
high liquidity to have increased the credit facility. |
