Abstract:
This study intends to assess the macro determinants of loan recovery of Commercial Bank of
Ethiopia. In the study, Unit root test (stationarity and non stationarity) and Co-integration
analysis for long run relationship methods were employed from1970 to 2011. The study makes use
of secondary data and series of Econometrics techniques were adopted, to justify the long run
relationship between loan repayment performance and its determinant over the period of analysis.
Moreover, the study investigates the level of CBE’s loan repayment performance and also
examines those various macroeconomic determinants of CBE’s loan repayment. More so, the
study used is estimated using loan repayment data (LR) and its determinants such as loan
disbursement (LD), exchange rate (EXR), consumer price index (CPI), Interest rate (IR), gross
capital formation (GCF), and nominal Gross domestic product (Y) from nominal we can get real
GDP so we can use either of the two for the period of 42 years. However, the study result
reveals that there is positive relationship between loan collection and loan
disbursement, exchange rate, Gross domestic product, gross capital formation except Interest
rate and consumer price index gross of inflation that have a negative relationship and it is
insignificant. It was also revealed from the result that there is a long run relationship between
Loan repayment and all the explanatory variables in the study. Finally, the study
recommend and conclude that CBE should endeavor to focus on this will enhance their
lending performance and should formulate critical, realistic and comprehensive strategic and
financial plans to minimize loan repayment defaults based on the corresponding current situation
of macroeconomic variables.
