The Impact of Non-Performing Loans on Bank Profitability: Evidence From Awash Bank, Ethiopia.

Abstract

The study focuses on the impact of non-performing loans on the profitability of Awash Bank Ethiopia from 2020 to 2024, amidst the rising credit risks in emerging markets. There is limited institution-level evidence of the impact of non-performing loans on banks. The study examines the link between NPLs and critical profitability ratios such as return on assets, return on equity, and net interest margins. A quantitative research approach is used, with primary data collected through 80 purposively selected customers, while secondary data are collected from audited financial statements and National Bank of Ethiopia reports. Regression analysis is used to study the relationships. The results indicate a rising trend in NPLs, which shows declining asset quality and profitability. NPLs have a significant negative influence on ROA, whereas their influence on ROE and NIM is negative but statistically insignificant. The study provides new evidence and suggests strengthening credit risk management and enhancing transparency in loan recovery.