Challenges of Pre-Shipment Export Credit Financing In the Commercial Bank of Ethiopia
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Date
2014-06
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Addis Ababa University
Abstract
This study was carried out to establish challenges of pre-shipment export credit financing in the Commercial Bank of Ethiopia. It specifically focused on pre sanction appraisal and post sanction control of pre-shipment export credit financing. The study looked at the trend of non performing pre-shipment loans during the period 2009-2013 and identified factors that account for bad loans. Primary and secondary data were used in the study. Poor quality of information obtained from the bank’s Management Information Services (MIS), sub-standard credit information obtained from the National Bank of Ethiopia, lack of procedural guidelines or memo that demand the communication between the designated CATS (Customer Accounts Transaction Services) Process Team, the Trade Service Process Team and Credit Management Team of the Bank as well as insufficient logistics facilities for executing proper loan follow up are challenges faced by the credit performers. Since pre- shipment credit facility is one among a number of credit products, it is difficult to generalize the findings of the study to other credit products of the bank. The findings showed that the bank recorded quite substantial amount of non performing pre-shipment loans during the period under consideration. The study identified volatility in international market, ineffective credit monitoring and loan diversion as major factors accounting for bad pre-shipment loans. To improve on the quality of the bank’s pre-shipment loans, ensuring proper integration of the various processes involved in the pre-shipment financing process; availing the necessary resources required for effective monitoring; improving the quality of information used for credit appraisal and decision and requesting adequate collateral for inexperienced and highly leveraged exporters are recommended. Key words: Pre-shipment Financing, Non-performing Loans, Pre-sanction Appraisal, Post- sanction Control.
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Keywords
Pre-shipment Financing, Non-performing Loans, Pre-sanction Appraisal, Post- sanction Control