Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia

Abubaker Demssie; Abebe Tilahun Kassaye

doi:doi:10.11648/j.jim.20251403.12

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Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia

Abubaker Demssie, Abebe Tilahun Kassaye^*

Published in Journal of Investment and Management (Volume 14, Issue 3)

Received: 14 July 2025 Accepted: 24 July 2025 Published: 13 August 2025

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Abstract

This study empirically investigates the determinants of non-performing loans (NPLs) in selected private commercial banks in Ethiopia, focusing on both bank-specific and macroeconomic factors. Employing an explanatory research design with a quantitative approach, the study analyses panel data collected from twelve private commercial banks over a ten-year period from 2012 to 2021. Data analysis was conducted using EViews 10 software, incorporating descriptive statistics, correlation matrices, and multiple linear regression models with both fixed and random effects. The findings reveal that exchange rates exert a positive and statistically significant influence on NPLs. Conversely, income diversification, capital adequacy, loan growth rate, and the loan-to-asset ratio are found to have significant negative effects on NPLs. The study is limited in scope to private commercial banks, excluding public banks and non-bank financial institutions, and relies solely on secondary data, which may omit relevant qualitative factors. Future research could address these limitations by expanding the sample and incorporating primary data for a more comprehensive understanding. This study adds value by offering context-specific insights into the Ethiopian banking sector, filling gaps in existing research, and providing practical recommendations for policymakers and banking professionals to manage and reduce NPLs, thereby supporting financial stability in emerging economies.

Published in	Journal of Investment and Management (Volume 14, Issue 3)
DOI	10.11648/j.jim.20251403.12
Page(s)	60-67
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2025. Published by Science Publishing Group

Keywords

Non-Performing Loans, Bank-Specific Factors, Macroeconomic Factors, Private Commercial Banks, Ethiopia

References

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APA Style

Demssie, A., Kassaye, A. T. (2025). Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia. Journal of Investment and Management, 14(3), 60-67. https://doi.org/10.11648/j.jim.20251403.12

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ACS Style

Demssie, A.; Kassaye, A. T. Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia. J. Invest. Manag. 2025, 14(3), 60-67. doi: 10.11648/j.jim.20251403.12

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AMA Style

Demssie A, Kassaye AT. Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia. J Invest Manag. 2025;14(3):60-67. doi: 10.11648/j.jim.20251403.12

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@article{10.11648/j.jim.20251403.12,
  author = {Abubaker Demssie and Abebe Tilahun Kassaye},
  title = {Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia
},
  journal = {Journal of Investment and Management},
  volume = {14},
  number = {3},
  pages = {60-67},
  doi = {10.11648/j.jim.20251403.12},
  url = {https://doi.org/10.11648/j.jim.20251403.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20251403.12},
  abstract = {This study empirically investigates the determinants of non-performing loans (NPLs) in selected private commercial banks in Ethiopia, focusing on both bank-specific and macroeconomic factors. Employing an explanatory research design with a quantitative approach, the study analyses panel data collected from twelve private commercial banks over a ten-year period from 2012 to 2021. Data analysis was conducted using EViews 10 software, incorporating descriptive statistics, correlation matrices, and multiple linear regression models with both fixed and random effects. The findings reveal that exchange rates exert a positive and statistically significant influence on NPLs. Conversely, income diversification, capital adequacy, loan growth rate, and the loan-to-asset ratio are found to have significant negative effects on NPLs. The study is limited in scope to private commercial banks, excluding public banks and non-bank financial institutions, and relies solely on secondary data, which may omit relevant qualitative factors. Future research could address these limitations by expanding the sample and incorporating primary data for a more comprehensive understanding. This study adds value by offering context-specific insights into the Ethiopian banking sector, filling gaps in existing research, and providing practical recommendations for policymakers and banking professionals to manage and reduce NPLs, thereby supporting financial stability in emerging economies.},
 year = {2025}
}

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TY  - JOUR
T1  - Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia

AU  - Abubaker Demssie
AU  - Abebe Tilahun Kassaye
Y1  - 2025/08/13
PY  - 2025
N1  - https://doi.org/10.11648/j.jim.20251403.12
DO  - 10.11648/j.jim.20251403.12
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 60
EP  - 67
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20251403.12
AB  - This study empirically investigates the determinants of non-performing loans (NPLs) in selected private commercial banks in Ethiopia, focusing on both bank-specific and macroeconomic factors. Employing an explanatory research design with a quantitative approach, the study analyses panel data collected from twelve private commercial banks over a ten-year period from 2012 to 2021. Data analysis was conducted using EViews 10 software, incorporating descriptive statistics, correlation matrices, and multiple linear regression models with both fixed and random effects. The findings reveal that exchange rates exert a positive and statistically significant influence on NPLs. Conversely, income diversification, capital adequacy, loan growth rate, and the loan-to-asset ratio are found to have significant negative effects on NPLs. The study is limited in scope to private commercial banks, excluding public banks and non-bank financial institutions, and relies solely on secondary data, which may omit relevant qualitative factors. Future research could address these limitations by expanding the sample and incorporating primary data for a more comprehensive understanding. This study adds value by offering context-specific insights into the Ethiopian banking sector, filling gaps in existing research, and providing practical recommendations for policymakers and banking professionals to manage and reduce NPLs, thereby supporting financial stability in emerging economies.
VL  - 14
IS  - 3
ER  -

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Author Information

Abubaker Demssie

Department of Accounting and Finance, College of Finance, Management and Development, Ethiopian Civil Service University, Addis Ababa, Ethiopia

Contact Email
Abebe Tilahun Kassaye

Department of Public Financial Management and Accounting, Ethiopian Civil Service University, Addis Ababa, Ethiopia

Contact Email

http://orcid.org/0000-0003-3681-6813

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Plain Text BibTeX RIS

APA Style

Demssie, A., Kassaye, A. T. (2025). Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia. Journal of Investment and Management, 14(3), 60-67. https://doi.org/10.11648/j.jim.20251403.12

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ACS Style

Demssie, A.; Kassaye, A. T. Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia. J. Invest. Manag. 2025, 14(3), 60-67. doi: 10.11648/j.jim.20251403.12

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AMA Style

Demssie A, Kassaye AT. Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia. J Invest Manag. 2025;14(3):60-67. doi: 10.11648/j.jim.20251403.12

Copy | Download

@article{10.11648/j.jim.20251403.12,
  author = {Abubaker Demssie and Abebe Tilahun Kassaye},
  title = {Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia
},
  journal = {Journal of Investment and Management},
  volume = {14},
  number = {3},
  pages = {60-67},
  doi = {10.11648/j.jim.20251403.12},
  url = {https://doi.org/10.11648/j.jim.20251403.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20251403.12},
  abstract = {This study empirically investigates the determinants of non-performing loans (NPLs) in selected private commercial banks in Ethiopia, focusing on both bank-specific and macroeconomic factors. Employing an explanatory research design with a quantitative approach, the study analyses panel data collected from twelve private commercial banks over a ten-year period from 2012 to 2021. Data analysis was conducted using EViews 10 software, incorporating descriptive statistics, correlation matrices, and multiple linear regression models with both fixed and random effects. The findings reveal that exchange rates exert a positive and statistically significant influence on NPLs. Conversely, income diversification, capital adequacy, loan growth rate, and the loan-to-asset ratio are found to have significant negative effects on NPLs. The study is limited in scope to private commercial banks, excluding public banks and non-bank financial institutions, and relies solely on secondary data, which may omit relevant qualitative factors. Future research could address these limitations by expanding the sample and incorporating primary data for a more comprehensive understanding. This study adds value by offering context-specific insights into the Ethiopian banking sector, filling gaps in existing research, and providing practical recommendations for policymakers and banking professionals to manage and reduce NPLs, thereby supporting financial stability in emerging economies.},
 year = {2025}
}

Copy | Download

TY  - JOUR
T1  - Determinants of Non-Performing Loan: The Case of Some Selected Private Commercial Banks in Ethiopia

AU  - Abubaker Demssie
AU  - Abebe Tilahun Kassaye
Y1  - 2025/08/13
PY  - 2025
N1  - https://doi.org/10.11648/j.jim.20251403.12
DO  - 10.11648/j.jim.20251403.12
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 60
EP  - 67
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20251403.12
AB  - This study empirically investigates the determinants of non-performing loans (NPLs) in selected private commercial banks in Ethiopia, focusing on both bank-specific and macroeconomic factors. Employing an explanatory research design with a quantitative approach, the study analyses panel data collected from twelve private commercial banks over a ten-year period from 2012 to 2021. Data analysis was conducted using EViews 10 software, incorporating descriptive statistics, correlation matrices, and multiple linear regression models with both fixed and random effects. The findings reveal that exchange rates exert a positive and statistically significant influence on NPLs. Conversely, income diversification, capital adequacy, loan growth rate, and the loan-to-asset ratio are found to have significant negative effects on NPLs. The study is limited in scope to private commercial banks, excluding public banks and non-bank financial institutions, and relies solely on secondary data, which may omit relevant qualitative factors. Future research could address these limitations by expanding the sample and incorporating primary data for a more comprehensive understanding. This study adds value by offering context-specific insights into the Ethiopian banking sector, filling gaps in existing research, and providing practical recommendations for policymakers and banking professionals to manage and reduce NPLs, thereby supporting financial stability in emerging economies.
VL  - 14
IS  - 3
ER  -

Copy | Download