Determinants of Non-Performing Loans: The Case of Development Bank of Ethiopia
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Date
2018-02
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Addis Ababa University
Abstract
The study identifies the determinants of Non-Performing Loans in project financing in the case of Development Bank of Ethiopia from credit officer’s viewpoint. In order to fulfill the stated objective an explanatory research design with quantitative and qualitative data approach were used. In order to obtain more insight on cases, open ended questionnaire was taken. Five variables used in the study, namely project follow up attributes, policy induced attributes, source of equity contribution, credit evaluation criteria of the bank during project appraisal and nature of the commodity factors assessed. In the study, probit regression model was used to examine variables which determine NPL. The study found that project follow up attributes, policy induced attributes and credit evaluation criteria during project appraisal had a significant and positive impact on the loan default in project financing which was consistent with the Researcher expectation. While source of equity contribution and nature of commodity attributes was found to had no significant contribution of loan default. The findings reveals that the Bank’s project follow up is poor, which do not enable the Bank’s top management make informed decision, plus the credit evaluation criteria such as DBE’s credit project appraisal and evaluation parameters are not genuine for the realization of the project, the commodity research data do not reflect realistic facts, and the financial projections are exaggerated and unrealistic. Thus , the Bank has to put in place well-built follow up system that geared towards figuring out prevailing problems a project and bring an amicable solution that help the banks top management make an effective decision that brings the project to the right track, revise credit policy and procedure of the Bank in manner that put into consideration the realistic situation of national and international economic condition and reconsider its project evaluation criteria and update accordingly.
Description
A Thesis Submitted to Addis Ababa University, College of Business and Economics, in Partial Fulfillment of the Requirements for the Degree of Master of Business Administration (MBA)
Keywords
Development Bank of Ethiopia, Non-Performing Loans, Project Financing