Factors Affecting Non-Performing Loans: Case study on Development Bank of Ethiopia
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Date
2024-06-25
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A.A.U
Abstract
The growth of non-performing loan portfolios in banks has significantly contributed to
triggering financial crises within the banking industry. Non-performing loans represent a
significant liquidity risk, potentially hampering banks' ability to maintain adequate capital
levels for their daily operations. This study aims to delve into the fundamental variables that
play a role in influencing nonperforming loans (NPLs) specifically within the Development
Bank of Ethiopia. The research sample for this study comprised 120 staff members, and a
census sampling method was employed to gather the necessary data. Through the utilization
of questionnaires and interviews, data collection took place, followed by comprehensive
analysis using SPSS. The findings from the study underscored that factors such as poor credit
assessment, weak collateral strength, high-interest rates, credit size, and insufficient credit
monitoring all exert a positive and statistically significant impact on NPL rates. It is
imperative for the higher management team at DBE to closely monitor bank-specific and
borrower-specific factors contributing to NPLs within priority sector business loans. By
establishing good credit policies and procedures, the bank can effectively mitigate the
adverse effects associated with non-performing loans. Loans granted to customers should be
evaluated to ascertain the adequacy of the collateral provided, emphasizing the importance
of robust legal documentation