Empirical Investigation on Determinants of Lending Behaviour: Evidence from Commercial Banks in Ethiopia

Abstract

This study was carried out to investigating determinants to lending behaviour in commercial banks of Ethiopia from 2010- 2017. The study tried to investigate bank specific and macroeconomic determinants of lending behaviour based on data of eleven commercial banks in Ethiopia by using deposit ratio, liquidity ratio, bank size, efficiency ratio and banks ownership as bank specific factors and Reserve requirement ratio, exchange rate, lending rate, inflation rate and gross domestic product as macroeconomic determinants of lending behaviour. The study also sought to examine lending disparity among banks under the investigation by taking into account individuality of each bank through dummy variable. Data was obtained from national bank of Ethiopia and world bank data base and analyzed through panel data regression analysis by applying fixed effect regression model. The finding revealed that from bank specific factors, deposit ratio and bank ownership have positive and significant effect on lending behaviour of banks under the investigation. On the other hand, liquidity ratio, bank size and efficiency ratio have negative but statistically insignificant effect on lending behaviour. The finding also shows that from macroeconomic factors, exchange rate, lending rate and gross domestic product have found to have positive but statistically insignificant effect on lending behaviour. Result on macroeconomic factors also shows that reserve requirement ratio and inflation rate have negative but insignificant effect on lending behaviour of banks under the investigation. Finally, the study revealed existence of statistically significant disparity between CBE and other banks under the investigation in terms of lending behaviour. Keywords: lending behviour, lending behaviour in Ethiopian banks, Girma Diriba DOI: 10.7176/RJFA/11-19-03 Publication date: October 31 st 2020