Determinants of Commercial Banks’ Lending Behavior: Case Study for Selected Commercial Banks in Ethiopia

  • Tsegay Gebremedhin Berhe Mekelle, Tigray, Ethiopia
Keywords: Lending Behavior, Interest Rate, Capital Adequacy Ratio, Asset Quality, Volume of Deposits, Commercial Banks, Ethiopia


The main objective of the study was to examine the determinants of commercial banks’ lending behavior for selected commercial banks’ in Ethiopia. The study used a cross sectional explanatory research design. The study describes the determinants of commercial banks’ lending behavior. Both qualitative and quantitative data were employed. The study used secondary data from the selected audited annual reports of the commercial banks as well as the yearly financial reports of National bank of Ethiopia from 2011 to 2017. The study utilized correlational and regression analysis to examine the relationship between the dependent (lending behavior) and independent variables (Interest Rate, Capital Adequacy Ratio, Liquidity Ratio, Asset Quality and Volume of Deposits) and power of explanation of the independent variables for the dependent variable respectively. The correlation results suggest that there was linear relationship between Volumes of Deposit, Interest/Credit Rate, Liquidity Ratio, Asset Quality (AQ) and Capital Adequacy ratio (CAR) with lending behavior of the selected commercial banks. Furthermore, the regression result revealed that the factors; Liquidity Ratio (LR), Credit Rate (CR) and Asset Quality have significant effect on lending behavior; whereas, two factors; Capital Adequacy Ratio and Volume of Deposits have insignificant effect on lending behavior of the selected commercial banks. Finally, the researcher recommended that there should be closer consultation and cooperation between commercial banks and the regulatory authorities so that the effect of regulatory measure on commercial banks is taken into account at the stage of policy formulation to include the most significant determinant factors of lending behavior. The study also recommends that effective policies should be developed to ensure commercial banks grow and advance more credit for their customers.


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