Abstract
The aim of the study was to assess the impact of credit risk management on the profitability commercial banks in Ethiopia. Secondary data was gathered from National Bank of Ethiopia for ten year periods (2010-2019). The study adopted Correlation analysis and fixed effect Model. Return on Asset was used to measure profitability of commercial banks, bank specific factors(Capital adequacy, Loan and Advances to total deposit, Non- Performing Loans, Bank size and Liquidity and macroeconomic factors (Inflation and Gross Domestic Product) as indicators of credit risk management. The findings showed that Credit Risk Management in terms of bank specific and macroeconomic factors has significant impact on profitability of commercial banks in Ethiopia. Also the result displayed that profitability of commercial banks is not affected by the amount of non- performing loans during the study. The study recommended that banks’ credit risk management should not give due devotion only to the internal factors but also to external factors exclusively (Gross Domestic Product and Inflation) in order to minimize their negative impact on profitability of commercial banks in Ethiopia
Highlights
IntroductionBanking industries have achieved great fame in the Ethiopian economic growth
Banking industries have achieved great fame in the Ethiopian economic growth.They play principal role in granting credit facilities for financing of agriculture, industrial and commercial activities
The results presented that Credit Risk Management have significant relationship with the profitability of commercial banks in Ghana
Summary
Banking industries have achieved great fame in the Ethiopian economic growth. They play principal role in granting credit facilities for financing of agriculture, industrial and commercial activities. The probability of incurring losses resulting from non- payment of loans by debtors known as credit risk is mostly encountered in the financial institutions of Ethiopia. According to Girma (2011), banking institution in Ethiopia has the largest assets in the loan portfolio and the primary source of credit risk in Ethiopian’s banking industries and are most likely to make a loss. When the commercial banks have higher credit risk, the greater credit payments to be charged by the banks
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