DETERMINANTS IN LENDING DECISION: IN THE CASE OF SELECTED PRIVATE COMMERCIAL BANKS OF ETHIOPIA

Commercial banks are the most important depository organizations that provide loan and advance in developing country. The objective of this study is to investigate the main determinants of Ethiopian commercial banks’ lending decision. Fixed effect balanced panel regression was used for the data of eight purposively chosen commercial banks over the period of 7 years (2016 to 2022). To realize the stated objective quantitative approach and explanatory design were employed using secondary data sources from the audited financial statement. Consequently bank specific, industry specific and macro-economic variable that affect banks’ loan were selected and analyzed by using Stata version 14 econometrics software. According to the findings, Profitability ratio, Gross domestic product, and volume of deposit all have a positive and statistically significant impact on bank loans. Liquidity ratio, and cash reserve ratios, on the other hand, has a negative and statistically significant impact on bank lending. While bank size, and lending interest rate were found to have statistically insignificant effects on the bank’s loans and advances. Therefore, Central Bank of Ethiopia should try to decrease minimum cash reserve requirements ratio for all commercial bank and the implementation of macro prudential policy measures by commercial banks.2