Determinants of Private Commercial Banks’ Lending in Ethiopia
DOI:
https://doi.org/10.64137/31080030/IJFEMS-V2I3P102Keywords:
Determinants, Private, Commercial Banks, Lending, EthiopiaAbstract
Choosing seven senior private commercial banks using judgmental sampling, this study used an explanatory research approach to examine the factors affecting private commercial banks' lending in Ethiopia. Using bank-specific and macroeconomic indicators based on audited financial statements; microeconometric analysis & secondary panel data from National Bank of Ethiopia, Ministry of Finance for the period 2008–2022. Statistical methodsIn the current study, data were analyzed by utilizing both descriptive statistics and a fixed-effect panel multiple linear regression model with STATA 16. The results indicate that bank size, deposit volume positively influenced private commercial banks' lending while cash reserve requirement, lending interest rate and management efficiency as well as inflation had negative statistically significant effects. On the other hand, lending had negative and statistically weak association with liquidity ratio and GDP respectively. These findings lead the study to advise Ethiopian private commercial banks to prioritize asset size growth and more effective deposit mobilizing techniques. Moreover, when extending loans, they ought to handle liquidity and lending activities by thoughtfully weighing internal variables, present economic circumstances, the larger macroeconomic environment, legal actions, and their intended clients.
References
Z. Abdul Karim, W. N. W. Azman-Saini, and B. Abdul Karim, “Bank Lending Channel of Monetary Policy: Dynamic Panel Data Study of Malaysia,” Journal of Asia-Pacific Business, vol. 12, no. 3, pp. 225–243, July 2011, doi: 10.1080/10599231.2011.570618.
[2] Projectng, “Determinants Of Lending Decision And Their Impact On Financial Performance Empirical Study On Private Commercial Banks In Ethiopia,” Projectng.com, Mar. 06, 2016. https://projectng.com/topic/ac8294/determinants-lending-decision-impact-financial
[3] M. Ajayi, “Monetary Policy Transmission Mechanism in Nigeria,” CBN Digital Commons, 2021, doi: 10.33429/1957-2968.1053
[4] E. E. Akpanuko and Acha Ikechukwu, “Instability in the Banking Industry: Is Dynamic Provisioning a Leeway?,” vol. 5, no. 1, pp. 40–50, Mar. 2010, Accessed: July 09, 2026. [Online]. Available: https://www.researchgate.net/publication/305731070_instability_in_the_banking_industry_is_dynamic_provisioning_a_leeway
[5] Q. A. Al-Kilani and T. A. Kaddumi, “Cyclicality of Lending Behavior by Banking Sector for the Period (2000-2013): Evidence from Jordan,” International Journal of Economics and Finance, vol. 7, no. 4, Mar. 2015, doi: 10.5539/ijef.v7n4p57.
[6] Rodrigo Alfaro et al., Bank lending channel and the monetary transmission mechanism: the case of Chile: Banco Central de Chile, 2003. [Online]. Available: https://www.bcentral.cl/en/content/-/details/documento-de-trabajo-n-223
[7] A. L. Alhassan, F. Owusu Brobbey, and M. Effah Asamoah, “Does Asset Quality Persist on Bank Lending Behaviour? Empirical Evidence from Ghana Munich Personal RePEc Archive,” Uni-muenchen.de, Feb. 03, 2013. https://mpra.ub.uni-muenchen.de/48177/
[8] G. Amano, Determinants of lending behavior of banks: a case study on commercial banks of Ethiopia, Addis Abbaba University, 2014.
[9] M. Amidu, “What Influences Banks Lending in Sub-Saharan Africa?,” Journal of Emerging Market Finance, vol. 13, no. 1, pp. 1–42, Apr. 2014, doi: 10.1177/0972652714534022.
[10] M. Arellano and O. Bover, “Another look at the instrumental variable estimation of error-components models,” Journal of Econometrics, vol. 68, no. 1, pp. 29–51, July 1995.
[11] “Vol. 75, No. 2, May, 1985 of The American Economic Review on JSTOR,” www.jstor.org. https://www.jstor.org/stable/i331322 (accessed July 09, 2026).
[12] P. Behr, L. Norden, and F. Noth, “Financial constraints of private firms and bank lending behavior,” Journal of Banking & Finance, vol. 37, no. 9, pp. 3472–3485, Sept. 2013, doi: 10.1016/j.jbankfin.2013.05.018.
[13] “Bell, E., Bryman, A., & Harley, B. (2018). Business Research Methods. Oxford, England Oxford University Press. - References - Scientific Research Publishing,” www.scirp.org. https://www.scirp.org/reference/referencespapers?referenceid=2944616 (accessed July 09, 2026).
[14] A. N. Berger and G. F. Udell, “A more complete conceptual framework for SME finance,” Journal of Banking & Finance, vol. 30, no. 11, pp. 2945–2966, Nov. 2006, doi: 10.1016/j.jbankfin.2006.05.008.
[15] B. S. Bernanke and A. S. Blinder, “Credit, Money, and Aggregate Demand,” National Bureau of Economic Research, Mar. 01, 1988. https://www.nber.org/papers/w2534 (accessed July 09, 2026).
[16] R. Blundell, S. Bond, and F. Windmeijer, “Estimation in dynamic panel data models: Improving on the performance of the standard GMM estimator,” Advances in Econometrics, vol. 15, pp. 53–91, Feb. 2001, doi: 10.1016/s0731-9053(00)15003-0.
[17] P. Bologna, “Is There a Role for Funding in Explaining Recent US Bank Failures?,” SSRN Electronic Journal, 2011, doi: 10.2139/ssrn.1998759.
[18] “Brooks, C. (2008) RATS Handbook to Accompany Introductory Econometrics for Finance. Cambridge Books, Cambridge University Press. - References - Scientific Research Publishing,” Scirp.org, 2018. https://www.scirp.org/reference/referencespapers?referenceid=2406133 (accessed July 09, 2026).
[19] L. Chernykh and A. K. Theodossiou, “Determinants of Bank Long-term Lending Behavior:Evidence from Russia,” Multinational Finance Journal, vol. 15, no. 3/4, pp. 193–216, Dec. 2011, doi: 10.17578/15-3/4-2.
[20] J. C. H. D. O. A. H. S. D. Tinsley Peter, J. Clouse, D. Henderson, A. Orphanides, H. Small David, and P. Tinsley, “Monetary Policy When the Nominal Short-Term Interest Rate is Zero,” The B.E. Journal of Macroeconomics, vol. 3, no. 1, 2026, Accessed: July 09, 2026. [Online]. Available: https://econpapers.repec.org/article/bpjbejmac/v_3atopics.3_3ay_3a2003_3ai_3a1_3an_3a12.htm
[21] J. Colquitt, Credit risk management : How to avoid lending disasters and maximize earnings. New York: Mcgraw-Hill, 2007.
[22] C. F. D. Augustin Ngomsi, “Determinants of Bank Long-term Lending Behavior in the Central African Economic and Monetary Community (CEMAC),” Review of Economics & Finance, vol. 2, pp. 107–114, Feb. 2012, Accessed: July 09, 2026. [Online]. Available: https://ideas.repec.org/a/bap/journl/120210.html
[23] “Creswell, J. W. (2009). Research Design Qualitative, Quantitative, and Mixed Methods Approaches (3rd ed.). Thousand Oaks, CA Sage Publications. - References - Scientific Research Publishing,” www.scirp.org. https://www.scirp.org/reference/referencespapers?referenceid=1763859 (accessed July 09, 2026).
[24] D. Sarath and D. Van Pham, “The determinants of Vietnamese banks’ lending behavior,” Journal of Economic Studies, vol. 42, no. 5, pp. 861–877, Oct. 2015, doi: 10.1108/jes-08-2014-0140.
[25] “The Development of Money, Monetary Institutions and Monetary Policy, 1941-75. In : An Economic History of Ethiopia Volume 1 : The Emperial Era 1941 – 74 | FSS,” Fss-ethiopia.org, 2020. https://fss-ethiopia.org/the-development-of-money-monetary-institutions-and-monetary-policy-1941-75-in-an-economic-history-of-ethiopia-volume-1-the-emperial-era-1941-74/ (accessed July 09, 2026).
[26] D. W. Diamond and R. G. Rajan, “Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking,” Journal of Political Economy, vol. 109, no. 2, pp. 287–327, Apr. 2001, doi: 10.1086/319552.
[27] R. Ewert, G. Schenk, and A. Szczesny, “Determinants of Bank Lending Performance in Germany,” Schmalenbach Business Review, vol. 52, no. 4, pp. 344–362, Oct. 2000, doi: 10.1007/bf03396624.
[28] V. Flamini, C. A. McDonald, and L. B. Schumacher, “The Determinants of Commercial Bank Profitability in Sub-Saharan Africa,” papers.ssrn.com, 2009. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1356442 (accessed July 09, 2026).
[29] E. Gaiotti and Alessandro Secchi, “Is There a Cost Channel of Monetary Policy Transmission? An Investigation into the Pricing Behavior of 2,000 Firms,” Journal of Money, Credit and Banking, vol. 38, no. 8, pp. 2013–2037, 2006, doi: 10.2307/4123042.
[30] Abreha Gezae, “Determinants of Banking Sector Development in Ethiopia,” National Academic Digital Repository of Ethiopia, 2015, doi: 10.20372/nadre:1309.
[31] K. Imran and M. Nishat, “Determinants of bank credit in Pakistan: A supply side approach,” Economic Modelling, vol. 35, pp. 384–390, Sept. 2013, doi: 10.1016/j.econmod.2013.07.022.
[32] “DIVERGENCE IN COMMERCIAL BANK LENDING DIMENSIONS: EMPIRICAL STUDY ON ETHIOPIA,” Researchbib.com, Feb. 24, 2016. https://paper.researchbib.com/view/paper/157128 (accessed July 09, 2026).
[33] A. Kasman, G. Tunc, G. Vardar, and B. Okan, “Consolidation and commercial bank net interest margins: Evidence from the old and new European Union members and candidate countries,” Economic Modelling, vol. 27, no. 3, pp. 648–655, May 2010, doi: 10.1016/j.econmod.2010.01.004.
[34] R. P. Kishan and T. P. Opiela, “Bank Size, Bank Capital, and the Bank Lending Channel,” Journal of Money, Credit and Banking, vol. 32, no. 1, p. 121, Feb. 2000, doi: 10.2307/2601095.
[35] C. R. Kothari, Research Methodology : Methods and Techniques. New Delhi: New Age International, 2004.
[36] R. La Porta, F. Lopez-de-Silanes, and A. Shleifer, “Government Ownership of Banks,” The Journal of Finance, vol. 57, no. 1, pp. 265–301, 2002, Accessed: July 09, 2026. [Online]. Available: https://www.jstor.org/stable/2697840
[37] J. Ladime, E. Sarpong-Kumankoma, and K. A. Osei, “Determinants of Bank Lending Behaviour in Ghana,” Journal of Economics and Sustainable Development, vol. 4, no. 17, pp. 42–47, 2025, Accessed: July 09, 2026. [Online]. Available: https://iiste.org/Journals/index.php/JEDS/article/view/9003
[38] M. Malede, "Determinants of Commercial Banks Lending: Evidence from Ethiopian Commercial Banks," European Journal of Business and Management, vol. 6, no. 20, pp. 109-117, 2014.
[39] McCarthy, "Investments and loans reported by the 10 largest U.S banks," Journal of Bank accounting and Finance, 2010.
[40] “Buy Modern Money and Banking Book Online at Low Prices in India | Modern Money and Banking Reviews & Ratings - Amazon.in,” Amazon.in, 2026. https://www.amazon.in/modern-money-banking-roger-miller/dp/0070423350 (accessed July 09, 2026).
[41] C. Montoro and R. Moreno, “The use of reserve requirements as a policy instrument in Latin America,” Bis.org, Mar. 14, 2011. https://www.bis.org/publ/qtrpdf/r_qt1103g.htm (accessed July 09, 2026).
[42] J. Morse, “Approaches to Qualitative-Quantitative Methodological Triangulation,” Nursing Research, vol. 40, no. 2, pp. 120–123, Mar. 1991, doi: 10.1097/00006199-199103000-00014.
[43] M. A. B. Moussa, and H. Chedia, "Determinants of bank lending: Case of Tunisia," International Journal of Finance and Accounting, vol. 5, no. 1, pp. 27-36, 2016.
[44] S. Ben Naceur and M. Kandil, “The impact of capital requirements on banks’ cost of intermediation and performance: The case of Egypt,” Journal of Economics and Business, vol. 61, no. 1, pp. 70–89, Jan. 2009, doi: 10.1016/j.jeconbus.2007.12.001.
[45] R. W. Ngugi, “An Empirical Analysis of Interest Rate Spread in Kenya,” no. RP_106, Jan. 2001, Accessed: July 09, 2026. [Online]. Available: https://www.researchgate.net/publication/46452271_An_Empirical_Analysis_of_Interest_Rate_Spread_in_Kenya
[46] “Nkusu, M. (2011) Nonperforming Loans and Macro-Financial Vulnerabilities in Advanced Economies. IMF Working Papers, 1-27. - References - Scientific Research Publishing,” Scirp.org, 2019. https://www.scirp.org/reference/referencespapers?referenceid=2431987 (accessed July 09, 2026).
[47] F. O. Olokoyo, “Determinants of Commercial Banks’ Lending Behavior in Nigeria,” International Journal of Financial Research, vol. 2, no. 2, July 2011, doi: 10.5430/ijfr.v2n2p61.
[48] S. O. Olusanya et al., "Determinants of lending behavior of commercial banks: Evidence from Nigeria, a co-integration analysis (1975-2010)," Journal of Humanities and Social Science, vol. 5, no. 5, pp. 71-80, 2014.
[49] A. M. Pruteanu-Podpiera, “The role of banks in the Czech monetary policy transmission mechanism,” The Economics of Transition, vol. 15, no. 2, pp. 393–428, Apr. 2007, doi: 10.1111/j.1468-0351.2007.00281.x.
[50] Y. Qudah, “Determinants of domestic bank lending behavior evidence of Jordan,” Emu.edu.tr, 2017. https://i-rep.emu.edu.tr/items/088b5450-af09-477f-beab-74bd872c2a8b (accessed July 09, 2026).
[51] M. Rabab’ah, “Factors Affecting the Bank Credit: An Empirical Study on the Jordanian Commercial Banks,” International Journal of Economics and Finance, vol. 7, no. 5, Apr. 2015, doi: 10.5539/ijef.v7n5p166.
[52] E. Richard, and V. Okoye, "Appraisal of Determinants of Lending Behaviour of Deposit Money Banks," International Journal of Scholarly Research Gate, vol. 2, no. 3, pp. 142-155, 2014.
[53] G. J. Santoni, “The Effects of Inflation on Commercial Banks,” Review, vol. 68, 1986, doi: 10.20955/r.68.15-26.thq.
[54] “Saunders, M.N. and Lewis, P. (2012) Doing Research in Business & Management An Essential Guide to Planning Your Project. Pearson Education, Canada. - References - Scientific Research Publishing,” www.scirp.org. https://www.scirp.org/reference/referencespapers?referenceid=2853992 (accessed July 09, 2026).
[55] “Sekaran, U. (1992). Research Methods for Business A Skill-Building Approach. New York John Wiley & Sons, Inc. - References - Scientific Research Publishing,” www.scirp.org. https://www.scirp.org/reference/referencespapers?referenceid=2636008 (accessed July 09, 2026).
[56] E. D. Stein, “PROFILE: Wetland Mitigation Banking: A Framework for Crediting and Debiting,” Environmental Management, vol. 26, no. 3, pp. 233–250, Sept. 2000, doi: 10.1007/s002670010084.
[57] “Determinants of Bank Credit in Emerging Market Economies,” IMF. https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Determinants-of-Bank-Credit-in-Emerging-Market-Economies-24698 (accessed July 09, 2026).
[58] J. E. Stiglitz and A. Weiss, “Credit Rationing in Markets with Imperfect Information,” The American Economic Review, vol. 71, no. 3, pp. 393–410, 1981, Accessed: July 09, 2026. [Online]. Available: https://www.jstor.org/stable/1802787
[59] V. Swamy and S. Sreejesh, “Financial Instability, Uncertainty and Bank Lending Behavior,” International Journal of Banking and Finance, vol. 9, 2012, doi: 10.32890/ijbf2012.9.4.8464.
[60] T. N. Emeri, “Determinants of Commercial Banks’ Lending Behavior in South Africa,” Emu.edu.tr, 2016. https://i-rep.emu.edu.tr/items/b4050ba6-9575-449b-b197-6f78432705ca (accessed July 09, 2026).
[61] Y. Taner, Effects of Inflation Uncertainty on Credit Markets: A Disequilibrium Approach. Economics Department, John Cook School of Business, 2000.
[62] Ayitenew Temesgen, “Determinants of Banks’ Lending Behavior In Ethiopia - Pragmatic Evidence From Commercial Banks,” ResearchGate, Dec. 25, 2016. https://www.researchgate.net/profile/ayitenew-temesgen/publication/327222207_determinants_of_banks (accessed July 09, 2026).
[63] N. Timsina, Impact of bank credit on economic growth in Nepal: Nepal Rastra Bank, Research Department, 2014.
[64] N. Timsina and R. S. Pradhan, “Effects of Bank Lending on Economic Growth in Nepal,” Journal of Advanced Academic Research, vol. 3, no. 3, pp. 53–75, Feb. 2017, doi: 10.3126/jaar.v3i3.16810.
[65] S. Tomak, “Determinants of Commercial Banks’ lending Behavior: Evidence from Turkey,” Asian Journal of Empirical Research, vol. 3, no. 8, pp. 933–943, Aug. 2013, Accessed: July 09, 2026. [Online]. Available: https://archive.aessweb.com/index.php/5004/article/view/3564
[66] E.-L. von Thadden, “Asymmetric information, bank lending and implicit contracts: the winner’s curse,” Finance Research Letters, vol. 1, no. 1, pp. 11–23, Mar. 2004, doi: 10.1016/s1544-6123(03)00006-0.
[67] “Vong, A. P. I., & Chan, H. S. (2009). Determinants of Bank Profitability in Macao. Working Paper Series, Macau University of Macau. - References - Scientific Research Publishing,” Scirp.org, 2021. https://www.scirp.org/reference/referencespapers?referenceid=3000165 (accessed July 09, 2026)
[68] J. Yu and R. Meyer, “Multivariate Stochastic Volatility Models: Bayesian Estimation and Model Comparison,” Econometric Reviews, vol. 25, no. 2–3, pp. 361–384, Sept. 2006, doi: 10.1080/07474930600713465.
