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Loans are important towards development of economy. But, its nonpayment leads to occurrence of massive loss on banks. So, this study was conducted with the aim of assessing determinants of private banks nonperforming loan, and to identify the practices used in managing nonperforming loan to reduce the existing size of non-performing loan in private commercial banks in Ethiopia. The study selected nine private commercial banks in Ethiopia judgmentally. The study used secondary sources of data, (panel data), over the period 2015-2020. The data were collected from NBE, Private banks annual reports and CSA. To analyze the data, descriptive statistics and fixed effect model were used. The finding showed that loan to deposit ratio and interest had positive and significant effect whereas return on asset, return on equity, cost efficiency ratio and capital adequacy ratio had negative and significant effect on the nonperforming loan of the banks. Management teams use different credit-follow up mechanisms to reduce the size of the banks’ nonperforming loan. Furthermore, the study recommended that the banks should be careful to make only good loans. This can be achieved through giving greatest importance on the areas of poor crdit management, lack of sound credit policy, inadequate credit analysis, error emphasis on profitability at the expense of loan quality. The banks should also consider loan to deposit ratio while providing loan to the borrowers as it is likely to increase non-performing loans. The government should establish sufficient infrastructure and peace and security of the country dependable so that the clients can utize the loan effectively and efficiently.
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