MACRO DETERMINANTS OF LOAN COLLECTION IN ETHIOPIAN COMMERCIAL BANKS (CASE STUDY – COMMERCIAL BANK OF ETHIOPIA)

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.