An Assessment of Credit Appraisal and Credit Risk Management practices of Development Finance Institutions: the Case of Development Bank of Ethiopia
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Date
2015-09
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Addis Ababa University
Abstract
The study focused on the Appraisal and credit risk management practices of Development Bank
of Ethiopia, against the background that there was large amount of nonperforming loans beyond
the set threshold of NBE, which could affect the overall status of the bank and the country as a
whole. Based on the general objective of assessing the loan appraisal and credit risk
management practices of Development Bank of Ethiopia, this study also tries to investigate the
reasons for the accumulation of bad loan at DBE. A descriptive survey method was used for the
study, by involving 32 questioner respondents comprising of all the technical staff from
Development Bank of Ethiopia with a direct credit related functions and key informant interview
were also held with the credit approval team chairman of DBE. A descriptive analysis was used
to investigate about the loan appraisal, the loan buyout, risk transfer, risk diversification, risk
retention and loan approval practices of DBE. The results of the study showed as there existed a
very good loan appraisal process at Development Bank of Ethiopia as compared to other risk
management technique like risk transfer and risk retention. The appraisal process helps identify
and analyze loss exposures support to monitor risk which enhances normal loan repayment
behavior of any creditor. Generally, except the issue of diversification in which the respondents
response shows a positive result, DBE’s credit risk management practice, in area of risk transfer
and retention is weak, hence these weak credit risk management practice of the bank in line with
the loan buy out services and implementation drawbacks were responsible for the accumulation
of Nonperforming loans in the bank
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Development bank of ethiopia