Firm-specific, industry-specific and macroeconomic determinants of commercial banks' lending in Ethiopia : panel data approach

Lending is the primary role in commercial banks' daily banking activities and is described as the heart of a commercial banks' banking business. On the other hand, it is also one of the greatest sources of risk to the safety and soundness of financial institutions. There is little empirical evidence on bank lending behavior in emerging markets like Ethiopia. However, the existing studies have a difference in the identification of which factors have a strong impact and on the direction of those impacts if any on Ethiopian commercial banks' lending. Thus, this study investigated the bank-specific, industry-specific and macroeconomic determinants of commercial banks' lending in Ethiopia using balanced panel data of 15 commercial banks from 2011 to 2019. To realize the stated objective quantitative approach and explanatory design were employed using secondary data sources from the audited financial statement of sampled commercial banks. The model result of the study indicated that bank-specific factors such as; volumes of deposit, capital adequacy, and bank size have a positive and statistically significant effect on bank lending. Industry-specific factors such as; cash reserve requirement, bank concentration, and average lending rate have a negative and statistically significant effect on bank lending. Likewise, one of the macro-economic variables gross domestic products has a negative and statistically significant effect on bank lending. The study suggested that commercial banks in Ethiopia have to manage their lending by giving more attention to the internal factors, which the management has control over in line with the banking industry rules and regulations recalling the influence of the general economic dynamic. I believe that this study is of interest to bankers, analysts, regulators, policymakers, and investors since it provides useful insight on the determinants of commercial banks' lending and an understanding of how bank intermediation roles may respond to internal as well as external rules, regulations, and general economic dynamics, and it will contribute to the scarce empirical evidence.