Agricultural Financing by Banks of Ethiopia the Case of Commercial Bank of Ethiopia
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Date
2016-01
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Addis Ababa University
Abstract
This study is conducted to assess the agricultural financing in the Commercial Bank of
Ethiopia, with particular emphasis on pre sanction appraisal and post sanction control of
agricultural lending. The study also looked at the trend of non performing agricultural
loans during the past ten-year period and the factors that account for agricultural bad
loans. It also aimed to identify the different credit risks inherent to agricultural loans and
the challenges in agricultural credit risk management of the bank. Both Primary and
secondary data were used in the study. Data is collected through questionnaire &
interview. It is found that the percentage share of agricultural non-performing loans to
total non-performing loans showed a rapid increment from 2011 onwards except in the
year 2015. The study also found that, the major risks the bank faced in agricultural
lending are production risk, price risk and over indebtedness. Further the study identified
that lack of technical experts providing their independent evaluation of the agricultural
feasibility study, lack of properly trained consultant to prepare agricultural project
feasibility study, less availability of data and up to date information, less capability of
credit performers of the bank to evaluate the technical and financial projections of
agricultural projects, are some of the major challenges to proper management of
agricultural credit risk in the bank. Regarding the causes for agricultural loan default,
crop damages, inadequate supervision or follow up, diversion of borrowed funds, willful
default, lack of proper investigation before lending and lack of good communication
facilities are the major causes for agricultural non-performing loan. To minimize the
agricultural credit risk, some measures are recommended to the management. These are;
hiring more agricultural expertise, strengthening the bank’s MIS and the marketing,
research and development departments, providing regular training for all credit
performers, revising the sufficiency of loan delivery time to evaluate the bankability of
agricultural loan requests.
Key words: Agricultural financing, Commercial Bank of Ethiopia
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Keywords
Agricultural financing, Commercial Bank of Ethiopia