This study is attempted to examine factors affecting non -performing loan of development bank of Ethiopia. The main objective is to examine the factors affecting nonperforming loans in DBE central region. After problem identification, research hypothesis was developed which inquires the relationship and effect of non-performing loans on development bank of Ethiopia. Both secondary and primary data were used in the research. The data is then analyzed using descriptive, correlation and regression techniques through SPSS and Stata software program.
The findings of the study revealed that gross domestic product has a positive impact on the occurrence of non-performing loans while other model variables unemployment, inflation rate and exchange rate have no impact on the occurrence of non-performing loan in which negatively affect non-performing loan. according to my study result. Also the result of the primary data indicated that in regarding about customer's specific causes, the result showed that credit culture of customers, lack of business knowledge, delayed approval, profit of the business, business location were determinants of non-performing loan while bank specific factors include poor credit assessment, poor customer selection, aggressive lending policy, borrowers culture, credit size affected non-performing loan.
Table of Contents
1 Background of the organization
1.1 Background of the study
1.2 Statement of the problem
1.3 Research objectives
1.3.1 General objective
1.3.2 Specific Objectives
1.4 Research questions
1.6 Significance of the study
1.7 Scope of the study
1.8 Limitations of the Study
1.9 Organization of the paper
2 Literature review
2.1 Introduction
2.2 Theoretical review
2.2.1. Financial Intermediation Theory
2.2.2 Information Asymmetry Theory
2.2.3 The Theory of Delegated Monitoring of Borrowers
2.2.4 Credit Assessment
2.2.5 Bank risks
2.2.6 Credit Risk Management
2.2.7 Meaning of Non-Performing Loans
2.3 Strategies for recovery of non-performing loans
2.4 Literature from various scholars
2.5 Empirical Literature Review
2.5.1 Empirical Studies in Ethiopia
2.5.2 Conceptual framework model
3 Research Methodology
3.1 Study area
3.2 Research design
3.3 Population
3.4 Sampling techniques
3.5 Data Collection Methods
3.6 Data analysis and presentation
4 Data
4.1 Introduction
4.2 Bank Specific Factors
4.3 Borrowers specific factors
5 Summary, Conclusion and Recommendation
5.1 Summary and Conclusion
5.1.1 descriptive summary
5.1.2 inferential summary
5.2 Recommendations
5.3 Recommendations for further studies
Research Objectives and Core Themes
This study aims to investigate the factors influencing non-performing loans (NPLs) within the Development Bank of Ethiopia (DBE), specifically within its central region, to provide insights for improving loan recovery performance and financial stability.
- Analysis of bank-specific factors contributing to non-performing loans.
- Examination of borrower-specific factors and credit behavior.
- Evaluation of the impact of macroeconomic variables on loan repayment.
- Investigation of credit assessment processes and their role in risk mitigation.
- Assessment of the effectiveness of current loan monitoring and recovery strategies.
Excerpt from the Book
Credit Assessment
Credit analysis is the first step in the process to tailor-make a solution to fit the customer’s needs. The assessment starts with an understanding of the customer’s needs and capacities to ensure there is a good fit in terms of the supporting solution. Credit assessment is the most important safeguard to ensure the underlying quality of the credit being granted and is considered an essential element of credit risk management (Cade, 1999).
The credit quality of an exposure generally refers to the borrower’s ability and willingness to meet the commitments of the facility granted. It also includes default probability and anticipated recovery rate (Saunders & Cornett, 2003). Credit assessment thus involves assessing the risks involved in financing and thereby anticipating the probability of default and recovery rate.
A credit analysis is used by the credit official to evaluate a borrower’s character, capital, capacity, collateral and the cyclical aspect of the economy, or generally referred to as the five C’s (Strischek, 2000). Detailed discussion of this model, also referred as the five C’s is done the next section.
Summary of Chapters
1 Background of the organization: This chapter introduces the role of development finance institutions in the economy and provides the historical and strategic context of the Development Bank of Ethiopia.
2 Literature review: This section covers theoretical frameworks related to credit risk, information asymmetry, and empirical studies regarding the determinants of non-performing loans globally and in Ethiopia.
3 Research Methodology: This chapter outlines the descriptive research design, sampling techniques, and data collection methods used to gather primary and secondary data for the analysis.
4 Data: This chapter presents the empirical findings from the survey and statistical analysis, focusing on bank-specific and borrower-specific determinants of non-performing loans.
5 Summary, Conclusion and Recommendation: This final chapter synthesizes the study findings, draws conclusions regarding the impact of identified factors, and provides policy recommendations for the bank.
Keywords
Non-performing loans, Development Bank of Ethiopia, Credit risk management, Credit assessment, Loan recovery, Borrower-specific factors, Financial stability, Default probability, Asset quality, Credit policy, Macroeconomic factors, Loan diversion, Risk mitigation.
Frequently Asked Questions
What is the primary focus of this research?
The research focuses on identifying and examining the various bank-specific, borrower-specific, and macroeconomic factors that contribute to the occurrence of non-performing loans (NPLs) within the Development Bank of Ethiopia.
What are the central themes addressed in the study?
The study addresses themes such as credit risk management, the efficacy of the Five C's of credit analysis, the impact of lending policies, borrower credit culture, and the role of loan monitoring in preventing defaults.
What is the main research objective?
The main objective is to identify the determinants of non-performing loans in the central region of the Development Bank of Ethiopia to help the institution improve its asset quality and financial stability.
Which scientific methods are utilized?
The researcher utilizes a descriptive survey approach, employing both secondary data and primary data collected through structured and semi-structured questionnaires, analyzed using SPSS and Stata software.
What content is covered in the main body?
The main body includes a theoretical review of credit risk concepts, an empirical literature review, a detailed research methodology, and a presentation of data regarding bank and borrower-specific factors.
How can this study be characterized by its keywords?
The study is characterized by its focus on NPLs, credit risk management, institutional policies, and the specific socio-economic context of the Ethiopian banking sector.
What did the study find regarding the relationship between credit assessment and loan defaults?
The study found that weak credit risk management and the admission of borrowers without sufficient prior selection are significant causes of non-performing loans at the Development Bank of Ethiopia.
How does loan diversion impact the bank?
The study indicates that loan diversion, where funds are used for unintended purposes, is a key borrower-specific factor that leads directly to loan default.
What recommendation does the author make for the Development Bank of Ethiopia?
The author recommends that the bank should enhance its capacity in credit analysis and loan administration, and place greater emphasis on developing the competency of its credit operators.
- Arbeit zitieren
- Mequanint Zeleke (Autor:in), 2018, Factors Affecting Non-Performing Loan in the Case of the Development Bank of Ethiopia, München, GRIN Verlag, https://www.grin.com/document/515299
