THE EFFECT OF CREDIT RISK MANAGEMENT ON PROFITABLITY OF ADDIS CREDIT AND SAVING INSTITUTION

Abstract

This study investigated the effect of credit risk management and Addis Credit and Saving Institution's profitability. The researcher employs panel data regression models with Return on Asset and Return on Equity as the dependent variables along with Nonperforming loan ratio, Capital adequacy ratio, Institution Size, and Total loan total deposit independent variables. This was accomplished by gathering information from the Addis Credit and Saving Institution in Addis Ababa and their published annual report for the years 2017 to 2022. Descriptive statistical methods including mean, maximum, minimum, and standard deviation were used to examine the acquired data. Furthermore, using STATA software, multiple linear regressions were utilized to determine the cause-and-effect relationship between the study variables analysis. The non-performing loan to total loan ratio and capital adequacy ratio were found to have significant negative effects on both return on assets andreturn on equity, according to the study's key findings. Moreover, Institutional size and the Total Loan to Total Deposit ratio have significantly and favorably impacts the Addis Credit and Savings Institution's profitability as assessed by Return on Asset) and Return on Equity. According to the study, it is advised that Addis Credit and Saving Institution adopt a strict policy for managing credit risk, develop a non-performing total loan management system, and create efficient collective ways for managing loan receivables. This research's expansion would be interesting to pursue with larger sample sizes and new measures of credit risk management and performance.