Determinants of NonPerforming Loan in Private Commercial Banks in Ethiopia
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Date
2025-06-01
Authors
Abebe Genbaw
Journal Title
Journal ISSN
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Publisher
A,A,U
Abstract
This study aims to assess determinants of nonperforming loans. The mixed research approach was adopted for this study. A survey was conducted among professionals working in private commercial banks in Ethiopia, all of whom held various credit-related positions, using a selfadministered
questionnaire.. This study has assessed the effectiveness of loan performance in terms of credit assessment; credit follow-up (monitoring), credit size, and collateral. The study used both primary and secondary data collection instruments, and 139 questionnaires were distributed to respondents. From these, 133 were returned in addition to that qualitative and quantitative research approach used. Stratified sampling methods were used, and the population into strata. After that, the researcher used a purposive sampling technique, and employees were selected. The researcher checked the reliability test, where the consistency of the questionnaire
was evaluated over time by Cranach’s Alpha (using SPSS version 27) to analyze the data gathered. The data was analyzed using the explanatory research design to see the relationships and effects between determinants and non-performing loans. Correlation and regression analysis was also used to see the relationships and effects between determinants and onperforming.
And data was analyzed using inferential statistics and Pearson correlation. The Pearson correlation analysis result indicates all relationships between the independent variables (credit assessment, credit follow-up (monitoring), credit size, and non-collateral loan) and the dependent variable (non-performing loans) were positively and significantly correlated. The finding of this study shows that loans are affected by inadequate credit assessments, rapid
growth in credit size, poor risk evaluations, weak follow-up and monitoring of loans, insufficient credit analysis, and a lack of adequate collateral. The researcher suggests that banks should be establish a strong credit process involving careful customer selection, thorough credit assessment, proper loan approval, proactive monitoring, adequate collateral, and clear loan
procedures and all loan processes should be implemented free from any interventions. Key words: credit assessment, credit follow up &monitoring, credit Size, collateral and NPL.