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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Keywords

Development bank of ethiopia

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