Determinants Of Loan Volumes Lent By Commercial Banks Of Ethiopia

Abstract

The main objective of the study was to examine the determinants of loan volume of commercial banks in Ethiopia. Various factors, theoretically, influence the loan volumes among banks. These factors include interest rates, bank size, liquidity, GDP and volume of deposits. The study adopted exploratory research design in its methodology. The targeted population for this study was 18 commercial banks in operation in Ethiopian as at 31st December 2021 and thirteen banks were selected by using purposive sampling technique. Secondary data was acquired for 10 years (January 2012 to December 2021) on an annual basis and analyzed them with panel data regression analysis. Whereas association between variables was determined by multiple linear regression model. STATA version 15 was used. The study findings revealed that volume of deposit, bank size, and lending rate have positive and significant influence on loan volumes. Implication of this is that a unit increment in volume of deposit, bank size and lending will result to an increase in the loan volume by 0.09,0.38 and 0.59 respectively. Furthermore, real gross domestic product as a measure of total economic activity within the economy has a negative and statistically significant effect on bank lending. The result portrayed that an increase in GDP leads to decreased bank lending, which is in line with the prior expectation. This study therefore recommends that all commercial banks of Ethiopia should consider those factors that have substantial effect on their lending in their strategy design