The Effect Of Non-Performing Loan On Profitability In Private Commercial Banks In Ethiopia: A Case Of Cooperative Bank Of Oromia S.C

Abstract

This study investigates the effect of non-performing loan on profitability of Cooperative bank of Oromia. Using panel data from the period 2013/14 to 2022/23, the research employs a quantitative approach to analyze secondary financial data. A sample of Cooperative bank of Oromia was selected from a total of 30 private banks in Ethiopia, using a Judgmental/purposive sampling method. The profitability of this bank serves as the dependent variable, while independent variables include non-performing loan growth rate, non-performing loan provision, non-performing loan write off and non-performing loan collateral coverage. The analysis utilized a fixed-effects regression model to explore the relationships between the variables. The findings indicate that the loan collateral coverage has a positive impact on profitability. In contrast, non-performing loan growth rate, non-performing loan provision and non-performing loan write off negatively a significant effect on profitability. The average profitability of the Cooperative bank of Oromia is found to be 3.067, with a standard deviation of 0.9808392, suggesting that there is a considerable variation in profitability across the bank. Furthermore, the study recommended the bank should emphasize the management of loans to reduce the level of nonperforming loans. Besides, it is better for the loan officers to provide financial counseling to the borrowers on the wise use of loan