THE IMPACT OF CREDIT RISK MANAGEMENT ON PROFITABILITY OF COMMERCIAL BANKS IN ETHIOPIA

Abstract

The importance of strong credit risk management for building quality loan portfolio is of Paramount importance to robust performance of commercial banks as well as overall economy. Since a large chunk of banks revenue accrues from loans from which interest is derived, managing credit risk plays important role for their profitability. As a result, the author is motivated to do research entitled with “Impact of Credit Risk Management on Profitability of Commercial Banks in Ethiopia" basing that there is a gap will currently research papers will done on the topic in terms of variables assumed as well as a new directives will issued by Commercial Bank of Ethiopia (the Central Bank in Ethiopia) after the research papers. Accordingly, the objective of the paper will to examine the impact of credit risk management on profitability of commercial banks in Ethiopia. in order to identify relationship between independent variables (Loan Loss Provision to Total Loan, Loan to Total Asset, Liquid Asset to Total Asset) and dependent variable (Return on Asset).Ten consecutive years audited financial statement used as a secondary data covering 2008-2017year.