Determinants of Non-Performing Loans: The Case of the Ethiopian Commercial Banks
No Thumbnail Available
Date
2015-06
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Addis Ababa University
Abstract
Loans and advances form a greater portion of the total assets in banks. These assets generate huge interest income for banks which to a large extent determine the financial performance of banks. However, some of these loans usually fall into non-performing status and adversely affect the performance of banks. In view of the critical role banks play in an economy, it is essential to identify problems that affect the performance of these institutions. Non-performing loans is one of these problems. Therefore, a research on determinants of non-performing loans, the case of Ethiopian Commercial banks was conducted on twelve banks. The research seeks to find out the determinants of non-performing loans in the Ethiopian commercial banks. Structured questionnaire was used to collect data for the study from both private and state-owned banks. The study found that poor credit analysis and unsound lending practices, lack of focused loan monitoring and follow-up, lenient credit terms and conditions, compromised integrity, and fund diversion as the major factors that contribute to loan default. Thus, it is suggested that banks should put in place a vibrant credit process that ensures proper customer selection, robust credit analysis, proactive monitoring, ethical standards, and prudent application of polices that govern bank loans. Key words: Non Performing Loans (NPLs); Credit Analysis, Credit Process
Description
Keywords
Non Performing Loans (NPLs), Credit Analysis, Credit Process