DETERMINANT OF LENDING RATE FOR COMMERCIAL BANKS IN ETHIOPIA: CASE OF SELECTED PRIVATE COMMERCIAL BANKS

Abstract

This study examines the determinants of lending rate in Ethiopian private commercial banking sector. The study used panel data collected from annual reports of nine private commercial banks operating in Ethiopia during the period 2013 - 2022. Accordingly, the lending rate of commercial banks is determined by bank, industry and macro-economic related factors. A quantitative research approach and explanatory design were adopted in carrying out this research. Secondary data were collected from annual audited reports of selected private commercial banks using purposive sampling technique. The study employed descriptive and econometric estimation techniques to analyze the influence of bank, industry and macroeconomic factors on lending rate. The analysis conducted using the econometric package STATA V.13. The study revealed that credit risk and market share have a positive and significant impact on bank lending rate; whereas, operating cost, reserve requirements and liquidity risk have a negative and significant effect on lending rate. However, bank size and inflation are not significant determinant of lending rate. The study recommends commercial banks to improve operational efficiency and effectiveness.