Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-17 !"aper# ISSN 2222-2$%% !&nline# 'ol.%( No.1)( 21*
-aterials and -ethods
Cor t0e purpose of investigating t0e reason be0ind w05 private commercial bans neglected t0e agriculture( 1 private bans were purposivel5 selected. ,0e ten private bans were selected based on number of private bans t0at were included in t0e 21 baning performance review report and t0ose w0o 0ad at least four 5ears< e=perience in baning business
Cour 5ear was purposivel5 taen b5 t0e investigator because t0e fastest double digit economic growt0 in Et0iopia is registered for t0e last four 5ears. ,o collect data uestionnaires were distributed for loan officers eac0 sampled private commercial bans at 0ead office level and semi-structured interview was for t0e credit managers of eac0 sampled private bans. ,0e stud5 also used secondar5 data. ,0e collected data were summari8ed and presented using te=t( table and anal58ed using descriptive inferential statistics. >esides( econometric anal5sis tool( specificall5( &9S regression model was used to test t0e literature driven 05pot0esis and finall5 to mae conclusion.
,' Econometric model
&9S regression is particularl5 powerful as it relativel5 eas5 to c0ec t0e model assumption suc0 as linearit5: constant variance and t0e effect of outliers using simple grap0ical met0ods !utc0eson and Sofroniou( 1@@@#. ,o empiricall5 investigate t0e ma6or c0allenges affect to agricultural loan( agricultural loan is considered as dependant variable. ,0e e=planator5 variable t0at were studied in t0is paper are: liuidit5 of t0e ban !lob#( si8e of t0e ban !sob#( capital efficienc5 or performance of t0e ban !;pb#( profitabilit5 of t0e ban !"ob#( competition wit0 t0e public owned ban !;mpbb#( real economic growt0 rate of domestic product !?gdp#( baced collateral !bcl#( credit utili8ing capabilit5 of t0e borrowers !cucbr#( long term economic strateg5 of t0e countr5 !Ecostra#. Specificall5( t0us( t0e model 0as been specified as:
glnH 1lob 2sob )cpb *pob % ;mpbb + ?gdp 7bcl $cucbr @Ecostra Ki 30ere(
is a constant:
is t0e coefficient of eac0 e=planator5 variable and KiH is error term.
.ormulation of /ypotheses
5pot0esis of t0e stud5 stand on t0eories and empirical findings related to agricultural loan and ban credit t0at 0as been developed over t0e 5ears b5 different sc0olars.
3.2.1 Liquidity of the banks
9iuidit5 refers t0e abilit5 of a financial firm to maintain regularl5 euilibrium between t0e financial inflow and outflow over time !'ento and anga( 2@#. ,0e most important factor affecting banersL preference for a certain t5pe of loan seemed to be t0e level of loan to deposit ratios !S0ip0o( 211#. Deposit growt0 rate for eac0 ban reflect c0anges in an availabilit5 of loanable funds in a ban. ,0erefore( 0olding of 0ig0 deposit in t0e ban affects t0e amount of loan granted to t0e borrowers. Similarl5( Niolau !2@# declared 0olding more liuid assets t0an illiuid maes an access to fund even more constrained. Cear of liuidit5 ris is t0e main reason for bans to 0old 0ig0 deposit or c0ange it to t0e most liuid assets !Borgan( 2#. ,0ere are two t5pes of liuidities called maret and funding liuidit5. ence in Et0iopia t0ere is no secondar5 maret w0ere t0e maret liuidit5 is 0ig0l5 practiced( t0is paper deals more wit0 t0e funding liuidit5 using loan to deposit ratio as a pro=5 variable.
"rivate >ans< liuidit5 position are e=pected to significantl5 and positivel5 affect lending to agriculture
Size of the bank
9arger bans tend to 0ave more diverse lending opportunities( but also more opportunities to raise deposit funds for lending to agriculture!Nam et.al( 27#. In contrast( ilbert and >elongia !1@$$# found t0at a ban<s lending to farmers as a percent of total loans declined wit0 ban si8e. Small firms( suc0 as famil5 farms( tend to obtain t0eir credit from smaller ban offices located wit0in t0e communit5 !>erger and 4dell( 1@@$M /oenig and Dodson 1@@%#. Statisticall5 9evonian !1@@+# found t0at larger bans are less liel5 to engage in agricultural lending t0an are smaller bans. In t0is stud5( total assets of a ban reflect ban si8e used b5 Nam.et.al is considered as t0e pro=5 variable to measure t0e ban si8e.
9arge si8ed private bans are e=pected to significantl5 and negativel5 affect t0e lending to agriculture
3.2.3 Capital efficiency (performance of banks
,0e traditional interpretation of t0e ban lending c0annelO 0as not paid attention to ban euit5: ban capital is traditionall5 interpreted as an irrelevantO balance-s0eet item !Criedman( 1@@1: 'an den euvel( 2)#. Euit5 capital can be t0e ma6or source of funds. >an capitali8ation( 0owever( influences t0e ban lending c0annelO owing to imperfections in t0e maret for debt. In particular( ban capital influences t0e capacit5 to raise uninsured forms of debt and t0erefore bans< abilit5 to contain t0e effect of a deposit drop on lending.9ow-capitali8ed bans( perceived to be more ris5 b5 t0e maret and 0ave greater difficult5 in issuing bonds and t0erefore are less able to s0ield t0eir credit relations0ips !/is0an and &piela( 2#. 30en euit5 is sufficientl5 low !and it is too costl5 to issue new s0ares#( bans reduce lending because prudential regulations establis0 t0at capital 0as to be at least a minimum percentage of loans !>olton and Crei=as( 21#. ,0erefore( t0e efficienc5 of ban in terms of euit5 capital is measured b5 ?&E. ?&E is defined as after ta= net income divided b5 total euit5 is taen as a pro=5 variable to measure t0e capital efficienc5 of t0e ban !Nam et.al( 27#. ,0is paper also used ?&E as a capital efficac5 measurement.