Abstract:
The problem of the study shows that various banks suffer from many types of banking risk.
This has significantly affected banks’ profits. The main aim of the study was to identify the
determinant factors of credit risk management. The study used mixed research approach. The
secondary data collected in commercial banks of Ethiopia from 2007 to 2016.A fixed effect
model was employed to identify the effects of independent variables.. The dependent variable,
credit risk ratio, was measured by loan loss provision which was the best one to measure and
indicate the effectiveness of the credit risk management of a bank. Independent factors were
efficiency ratio, return on equity after tax, net interest margin, loan and advance, GDP
growth rate, age of the bank, spread, inflation rate, total asset and operation ratio. Return on
equity after tax, total asset and age of the bank were negatively correlated with loan loss
provision whereas loan and advance and operation ratio were positively correlated to loan
loss provision The skill, perception, opinion and experiences of the loan officers influenced
the credit risk management systems in Ethiopian commercial banks. The level of nonperforming loans indicated the loans quality and credit risk management of a bank. The low
proportion of non-performing loan linked with the strengths of credit risk management. The
study recommended that the central bank should increase their oversight on the credit
granted by the commercial banks. Also, the commercial banks should establish a department
of risk management, and make diversifications in the credit facilities so as to reduce the credit
risk.
