Determinants of commercial bank loan and advance disbursement: the case of private Ethiopian commercial banks

Abstract

PurposeThis paper aimed to investigate the determinants of loans and advances from commercial banks in the case of Ethiopian private commercial banks.Design/methodology/approachThe study randomly selected seven commercial banks to represent the population stratified on their asset, deposit and paid-up capital amounts. The study utilized an unbalanced panel data model as each bank started operation at a different period of time and considered the period 1995–2016 for secondary details.FindingsThe findings showed that the deposit size, credit risk, portfolio investment, average lending rate, real gross domestic product (GDP) and inflation rate had significant and optimistic effects on the lending and advancement of private commercial banks. On the contrary, liquidity ratio had significant and negative effects on private commercial bank loans and advances. Finally, the study forwarded a feasible recommendation for concerned organs to focus on deposit size, credit risk, portfolio investment, average lending rate, real GDP, inflation rate and liquidity ratio. The results of this study will help banking industry policymakers and planners understand how to minimize inflation and unemployment by improving development and sustainable economic growth.Originality/valueThe findings of this study can also affect the general attitudes of a society by increasing knowledge and improve the quality of life for the general public.